Vietnam Economic Forecast 2021

Vietnam Economic Forecast 2021

The Vietnam Economic Forecast 2021 summarizes key economic and social developments over the past year. It also presents findings on the evolution of policy reforms, external/global conditions, and financial-market dynamics from world-recognized financial institutions and multinational professional services authorities, assessing their implications for the country’s medium-term economic outlook. 

Vietnam was one of the most resilient economies in the Asia-Pacific region to the shockwaves from the global COVID-19 pandemic during 2020. Strong economic recovery continued in the first half of 2021, with GDP in the second quarter of 2021 rising by 6.6% year-on-year. 

However, after considerable success during 2020 in containing daily new domestic cases to low levels, the situation has deteriorated in May and June 2021, with a significant pickup in reported daily new cases. With vaccination rates still remaining very low as a share of the total population, Vietnam remains vulnerable to a rising and protracted coronavirus wave.  

New COVID-19 Wave Poses Downside Risks To Vietnam’s Economy 

Vietnam has been one of the world’s fastest growing emerging markets in the past decade, boosted by strong foreign direct investment inflows into its manufacturing sector. The pace of economic growth slightly exceeded 7% in both 2018 and 2019.  

Rapid growth of manufacturing exports and large new inflows of foreign direct investment have been important growth drivers for Vietnam, notably driven by rapid expansion in the textiles and electronics sectors. Total electronic and electrical manufacturing exports accounted for 33% of total merchandise exports in 2019, with textiles, clothing, and footwear accounting for a further 19.4%. Total foreign direct investment inflows reached USD 20.4 billion in 2019, up 6.7% year-on-year, driven by strong investment by multinationals in establishing new manufacturing production facilities in Vietnam.  

However, economic growth momentum moderated significantly in 2020, due to the impact of the COVID-19 pandemic. For calendar 2020, the Vietnamese economy grew by 2.9% y/y, compared with a 7.1% GDP growth rate in calendar 2019. Despite the moderation in growth momentum, Vietnam was one of the very few industrial economies in the Asia-Pacific region that achieved positive GDP growth in 2020.  

Economic growth momentum has strengthened in the first half of 2021. GDP growth in the second quarter of 2021 up 6.6% y/y, improving on the 4.5% y/y growth recorded in the first quarter of 2021. However, a pickup in daily new COVID-19 cases during May and June has created risks to the near-term outlook. A key concern is the low COVID-19 vaccination rate in Vietnam, which leaves the nation vulnerable to further rises in daily cases until vaccination levels increase substantially. Only 3.3% of the total population had received a first vaccination by 27th June 2021, while the fully vaccinated share was extremely low, at just 0.2% of the population. As a result of the rising coronavirus wave, the government authorities have put in place strict lockdown restrictions for Ho Chi Minh City for a wide range of activities, including on public transport and public gatherings, as well as non-essential business activities. 

COVID Wave Impact On Manufacturing Sector 

The latest wave of COVID-19 cases in Vietnam led to a sharp decline in business conditions for manufacturers during June. Output and new orders both decreased at the sharpest rates since the first outbreak of the pandemic in early-2020, while firms scaled back their employment and purchasing activity accordingly. The pandemic also impacted supply chains, resulting in a near-record lengthening of delivery times. However, despite the deterioration in manufacturing conditions in June, Vietnam’s exports performed strongly during the first four months of 2021.  

Electronics Sector Hit By Global Demand Slump 

A key factor that has driven the sustained strong growth of Vietnam since 2010 has been the rapid growth of electronics manufacturing. The importance of Vietnam’s electronics industry has risen dramatically, with the electronic industry’s share of total GDP rising from around 5% in 2010 to around one- quarter of GDP by 2019, a key factor helping to drive rapid growth of both exports and GDP. 

With electronics now being Vietnam’s most important export sector, the impact of global lockdowns due to the pandemic on the global electronics industry had been a key shock to the sector during the first half of 2020. Amid widespread global lockdown measures aimed at containing the spread of the pandemic, world demand for electronic goods slumped sharply in the second quarter of 2020. 

Medium Term Growth Drivers 

The pandemic is expected to recede during 2022 as vaccination rollout becomes more widespread across the population of Vietnam. Over the medium-term outlook for the next five years, a number of key drivers are expected to continue to make Vietnam one of the fastest growing emerging markets in the Asian region. 

Firstly, Vietnam will continue to benefit from its relatively lower manufacturing wage costs relative to coastal Chinese provinces, where manufacturing wages have been rising rapidly over the past decade. 

Secondly, Vietnam has a relatively large, well-educated labor force compared to many other regional competitors in Southeast Asia, making it an attractive hub for manufacturing production by multinationals. 

Third, rapid growth in capital expenditure is expected. This reflects continued strong foreign direct investment by foreign multinationals as well as domestic infrastructure spending. 

Fourth, Vietnam is benefiting from the fallout of the US-China trade war, as higher US tariffs on a wide range of Chinese exports have driven manufacturers to switch production of manufacturing exports away from China towards alternative manufacturing hubs in Asia. 

Fifth, many multinationals have been diversifying their manufacturing supply chains during the past decade to reduce vulnerability to supply disruptions and geopolitical events. This trend has been further reinforced by the COVID-19 pandemic, as protracted supply disruptions from China during February and March created turmoil in global supply chains for many industries, including autos and electronics. 

Uncertainties and Opportunities 

The Vietnamese economy is expected to show improved annual growth in 2021, with GDP growth expected to strengthen to a pace of 5.5% y/y. Growth momentum is forecast to strengthen further to 6.8% y/y in 2022. 

However, a key uncertainty in the near-term outlook is the extent and duration of the current wave of new COVID-19 cases that is hitting the nation. If the coronavirus wave escalates further, it poses a significant risk to the near-term outlook for domestic demand, with the added risk of disruption to manufacturing output if new cases are detected in major manufacturing facilities or logistics supply chains.  

Despite these near-term risks, over the medium-term economic outlook, a large number of positive growth drivers are creating favorable tailwinds and will continue to underpin the rapid growth of Vietnam’s economy. This is expected to drive strong growth in Vietnam’s total GDP as well as per capita GDP. 

Vietnam’s role as a low-cost manufacturing hub is also expected to continue to grow strongly, helped by the further expansion of existing major industry sectors, notably textiles and electronics, as well as the development of new industry sectors such as autos and petrochemicals. 

About Outsource Asia 

Outsource Asia is committed to providing industry and technology expertise, solutions, frameworks and tools to businesses looking to explore, build, and manage outsourced teams. Its seasoned outsourcing professionals connects organizations of all sizes and types to top-notch outsourced suppliers and service providers in the Philippines and around the world. 

What services do you want to outsource? Schedule for FREE CONSULTATION today. 

Sign Up for a Free Consultation

Tell us what you need by answering these questions.

What services do you want to outsource?
How many staff to outsource?
What skill level do you need?

Want to know the cost of outsourcing your business processes?

Sign Up for a Free Consultation

Tell us what you need by answering

What services do you want to outsource?
How many staff to outsource?
What skill level do you need?

Stay updated on the latest in outsourcing. Subscribe to Outsource Asia and receive news straight to your email.