Vietnam’s economy posted a growth of 4.48 per cent in the first quarter of this year, higher than the 3.68 per cent of the same period last year. All the key sectors of the economy were relatively aligned with the agro-forestry-fishery sector, service and construction and industrial sector posting growth rates of 3.16 per cent, 3.34 per cent and 6.3 per cent respectively. The construction and industrial sector is a key growth pillar for the economy, especially manufacturing and processing which create 80 per cent of Vietnam’s industrial growth. In the first quarter, manufacturing and processing industry grew 9.45 per cent, higher than the year-on-year climb of 7.12 per cent in the same period last year.

“The GPD growth rate of first quarter at 4.48 per cent was low, from the point of view of the ministry,” said Deputy Minister of Planning and Investment Tran Quoc Phuong. However, there is still need for an objective view for this growth, because the 5.12 per cent growth scenario for the first quarter is placed in a state of a “new normal”, but the recent out-break in the northern province of Hai Duong and some others has pulled economic growth down again.

Resolution 01/NQ-CP of the Government set the GDP growth target for the whole year 2021 at 6.5 per cent, broken down into 5.12 per cent for the first quarter, 7.11 per cent for the second quarter, 6.71 per cent for the third quarter and 6.67 per cent for the fourth quarter. Striving to achieve a GDP growth rate of 6.5 per cent by the end of 2021 is a both goal and a pressure for Vietnam. According to global data analyst and provider FocusEconomics, this year, Vietnam’s industrial production should pick up pace from 2020’s slowdown as economic activity recovers in key international markets. “Moreover, the underlying strength of Vietnam’s industrial sector remains intact despite COVID-19: Vietnam is an attractive low-cost base for manufacturing firms, including those looking to relocate from China due to the US-China trade tensions,”

Moreover, the outcome of the economic growth remains unpredictable as COVID-19 could flare up again anytime as the latest cases show. Nguyen Thu Oanh, director of the Price Statistics Department under the General Statistic Office, noticed that although the average consumer price index (CPI) in Q1 increased by only 0.29 percent year-on-year, the lowest first quarter increase in the past 20 years, keeping the inflation below 4 per cent this year will not be easy.

Global crude oil prices have been increasing sharply after the United State and other countries in the region launched economic stimulus packages. According to calculations, if the average crude oil price is about $60 per barrel, the CPI in 2021 will increase by 0.9 per cent.

However, the economic picture in the first three months also showed many bright spots. Retail sales of consumer goods and services increased by 5.1 per cent in Q1 over the same period last year, showing that consumer demand has increased again. Import-export activities also strongly recovered, and trade balance generated an export surplus of $2.03 billion.

In addition, the number of newly-registered enterprises in Q1 decreased by 1.4 per cent compared to the same period last year, but the total registered capital increased by 27.5 per cent due to the increase in the number of enterprises with registered capital of over VND100 billion ($4.35 million) and a decrease in those enterprises with less than VND10 billion (435,000). These factors will be the impetus for the next quarter to accelerate Vietnam’s economic growth, especially when vaccines are further distributed.

“All of these figures showed that the first-quarter economy has been strongly bouncing back with the gradual popularity of vaccination against the COVID-19 pandemic,” said Prime Minister Nguyen Xuan Phuc at cabinet meeting, also the last one in the 2016-2020 tenure of the government. “The confidence of enterprises has continued climbing, with them gradually resuming their normal activities. This has contributed to our relatively impressive economic growth in the first three months.”

According to Dr. Nguyen Xuan Thanh, a member of the Prime Minister’s Economic Advisory Group, the good news in the first quarter is that all major economies are on their way to recover. Given this optimistic scenario, Thanh sees that while major markets rely on vaccinations to reboot their economies, they also still operate under monetary and fiscal policies towards loosening interest rate, in combination with expanded stimulus packages. In Vietnam, the economy can also follow an optimistic scenario with five basic growth drivers.

First is marco stability, according to Thanh. The expectation of reaching a GPD growth of 6.5 per cent is based on a weak inflationary pressure, so that the government can operate both monetary and fiscal policies in the direction of supporting growth.

Secondly, private investments need to recover, combined with further public investment in infrastructure. Maintaining a low interest rate level and further reducing lending interest rate will be the driving force for business’s investments.

Third is the resumption of foreign direct investment (FDI) flows to take place after pandemic. The trend of supply chain shifts will maintain an attractive position for FDI inflows for Vietnam, but will also create challenges for the monetary and exchange rate regulators to ensure that the country’s economy can still absorb these inputs.

Next involves restoring the purchasing power in the domestic market, Thanh explained. One of the biggest concerns of the businesses is that they cannot prosper if the purchasing power of the domestic market remains weak.

The digital transformation has been a huge driver and has led to new types of shopping. Monetary and fiscal policy must also be in a state of supportive growth to restore purchasing power in domestic market.

Labour market data last year showed that after falling by 2.4 million people in Q2 over the previous quarter, the market recovered with an increase by 1.5 million in the third quarter and 600,000 more in Q4. This is the basis for the recovery of purchasing power in the domestic market this year.