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Vietnam’s economic growth forecast lowered in anticipation of pandemic impacts

Recently, Rong Viet Securities (VDSC) has announced the outlook report for the last 6 months of the year. Accordingly, the economic outlook for the second half of 2021 depends heavily on the effectiveness of pandemic prevention as well as the progress of vaccination.

Notably, VDSC reduces its forecast for GDP growth rate for the whole year 2021 to 4%. Explaining this, the report says, this growth number reflects the negative impacts of the fourth outbreak on domestic activities, as well as the lingering impacts of the Covid-19 prevention measures on economic activities.

It is estimated that most economic sectors are operating below 50% of their capacity, due to the following reasons:

  • Several provinces and cities are tightening their grip on non-essential activities, non-essential travel and gathering activities under Directives No. 16+, No. 16 or No. 15 of the Government.
  • Prolonged social distancing in several cities and provinces can exert serious impact on the economy as these provinces contribute to more than 80% of the national GDP.
  • Currently, the whole country is experiencing the most stringent lockdown since the outbreak of the pandemic, the traffic volume decreased significantly in July 2021, even lower than the lockdown in April 2020.
  • At least 70% of manufacturing plants in the South have to suspend operations during the lockdown. In addition, factories operating under the “three-on-site” model suffer huge operating costs and have to reduce their capacity by 40-50%.
  • Strict control measures have currently brought many risks of disruption to freight operations and manufacturing supply chains, specifically, increased operating costs and extended transporting time. Besides, the delay of transportation and the closure of manufacturing plants also put great pressure on the operation of cargo ports.

Overall, the economic outlook for the second half of the year depends on the effectiveness of the pandemic containment and the speed of vaccination. In the third quarter of 2021, household consumption and service sectors are likely to experience negative growth. In the fourth quarter of this year, without stronger policy support, the economic recovery will be weak due to the aftershocks from the pandemic on the labor market, supply chain, business and household balance sheets.

Regarding 2022, the report states, there will be less chance of widespread lockdowns, which lays a better foundation for economic growth to recover.

Accordingly, it is forecasted that in 2022, Vietnam’s GDP will increase by 6.5%, with a recovery in the manufacturing sector and personal consumption spending. However, as the possibility of Delta waves and new variants accompanied by severe restrictions on the pandemic remains an unpredictable risk in 2022, the recovery will still be difficult and relatively slow for some sectors such as tourism, travel and retail.

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