According to the report, the COVID-19 pandemic is expected to drag down 2021’s growth prospects. The labor shortage caused by the lockdown in the Mekong Delta will disrupt agriculture supply chains. Agriculture exports may also suffer from the monsoon in the third and fourth quarters and the quarantine measures imposed on Vietnam's agriculture exports.
On the bright side, improved market access from free trade agreements and recoveries in the European Union, the People's Republic of China, and the United States will boost agricultural exports. Agriculture growth is expected at 2.7% in 2021, the same level as in 2020.
Extended lockdowns in major cities will continue to disrupt the supply of labour, hurting especially labor-intensive manufacturing and lowering output. The purchasing managers’ index hovered below 50 from June to August, signaling a deceleration in manufacturing. As a result, industry growth is forecast to slow to 5.0% in 2021 from the pre-pandemic level of 8.9% in 2019.
The increasing need for nonphysical transactions and health care will sustain the growth of financial and health services. But closures of tourist areas and limited mobility will continue to hit tourism, lowering growth in the services sector to a forecast 3.3% this year from of 7.3% in 2019.
A prolonged pandemic and an extended lockdown are expected to weaken consumption and investment in 2021. The labor shortage, slow land acquisition and resettlement procedures, increasing costs of construction materials, and the third and fourth quarter monsoon will slow the disbursement of public investment. The disbursement of the state budget in the first 8 months fell by 46.4% compared with the same period last year.
Credit demand has remained subdued so far in 2021 due to the pandemic disrupting production and businesses. Credit growth is expected to slow to 10%–11% this year, below the 12% target.
The fast recovery of Vietnam’s main overseas markets, particularly the EU, China, and the US, will support exports, especially for textiles, garments and footwear, electronics, and mobile phones. But the lockdown of major industrial hubs in the Mekong Delta will constrain production capacity, triggering a shift of orders to other countries.
According to the ADB, assuming the COVID-19 pandemic is brought under control by the end of 2021 and full vaccination covers 70% of the population by the second quarter of 2022, the GDP growth forecast for next year is revised to 6.5%, which is still lower than the earlier projection. The inflation rate forecast is also revised down, to 2.8% for 2021, as subdued domestic demand has pushed the rate to its lowest level since 2016. The inflation rate is forecast at 3.5% in 2022 as growth accelerates.
Vietnam’s economic outlook in the near term is challenging, the bank says. The main risk to the outlook is a prolonged COVID-19 outbreak if the vaccination rate does not increase substantially. Because vaccines are not reaching Vietnam fast enough, the government’s efforts to start up domestic COVID-19 vaccine manufacturing in 2021, combined with increased procurement from outside sources, will be crucial for the country to avert a health crisis caused by the pandemic.
The growth prospects for this year and next will also depend on the timely and sufficient provision of necessities, such as food and cash, to those affected by the outbreak. Nonperforming loans could become a risk in 2022. Cutting unnecessary administrative burdens and digitalizing government procedures will be critical for improving the efficiency of pandemic containment measures and to support recovery this year and beyond.