Vietnam’s GDP predicted to grow 7.6 percent in 2021
Although a resurgence of Covid-19 cases and reimplementation of restrictions across the region is expected to affect the near-term outlook, South-East Asia’s gross domestic product (GDP) is set to resume its growth in 2021, a new report predicted.
According to the latest Economic Outlook report from Oxford Economics (OE), commissioned by chartered accountancy body ICAEW, Vietnam was one of the economies in the world to grow in 2020, due to its success in containing the pandemic. This early success enabled the economy to benefit from the surge in global trade activity and enjoy strong foreign direct investment (FDI) flows that boosted export-oriented and manufacturing industries. Despite the recent resurgence of Covid-19 cases, Vietnam’s growth outlook remains optimistic and the economy is expected to resume its pre-Covid levels in the second half of 2021, with GDP forecast to grow 7.6 percent, one of the highest in the region.
Singapore and Vietnam are expected to continue leading the region in recovery. Despite a resurgence of Covid-19 cases, which has affected Vietnam’s manufacturing sector and export industries, its economy is predicted to rebound swiftly once restrictions are lifted. Similarly, Singapore’s success in rolling out the vaccines greatly contributes to an optimistic outlook for it, and the country is the only one in the region expected to reach herd immunity by the end of 2021. Singapore’s GDP is expected to recover to 6.4 percent, after contracting 5.4 percent in 2020, despite a possible short extension of its Phase 2 Heightened Alert.
The report also predicted that South-East Asia’s GDP will rebound strongly to 4.8 percent in 2021, after contracting 4.1 percent in 2020. This rebound will be due to an improvement in global trade activities, accommodative macro-policies, continued government fiscal support and low interest rates across the region. Growth is also forecast to improve to 6.5 percent in 2022 as countries move closer to herd immunity and the recovery becomes more synchronized across sectors.
South-East Asian economies will continue to experience varying speeds of recovery in 2021, driven by countries’ abilities to contain fresh waves of Covid-19 infections and their success in vaccine procurement and distribution. Uncertainties remain as rates of recovery will depend on the progress of vaccine rollouts and whether the possibility of further lockdowns remains high in the near-term. However, the economic outlook report is optimistic about regional growth prospects for South-East Asia in the medium to long-term.
Sequential GDP growth is expected to be weaker in the second quarter than in the first quarter across most economies in the region, as tighter restrictions will hit already fragile sectors which are negatively affected by social distancing measures or lowered household ‘social spending’.
Despite these headwinds, accommodative macroeconomic policies and a surge in world trade means that most of South East Asia will still record impressive GDP growth figures this year. An easing of restrictions expected in June and July for most countries is likely to facilitate an economic improvement in the second half of this year. Apart from Philippines and Thailand, most South-East Asian economies are expected to return to pre-Covid levels of growth this year, with Singapore and Malaysia set to see 2021 GDP growth between 2-2.5 percent above pre-Covid levels.
Recent lockdown restrictions in Singapore, Vietnam and Malaysia mean that household spending has reduced in the second quarter of 2021. However, it is unlikely to dip significantly, as households and businesses are better equipped with digitalization to enable them to work and shop remotely. Governments have also used more targeted measures, compared to nationwide lockdowns, in order to minimize disruptions.
In Singapore, the government has also unveiled more fiscal support. In addition, export-oriented industries such as manufacturing of electronics, semiconductors and pharmaceutical products are also expected to contribute to growth pick-up in the third quarter of 2021 onwards, supported by a strong global recovery.
“While most South-East Asian economies have experienced a surge in Covid-19 cases since the start of 2021, leading to the reinstatement of social distancing measures, this has dimmed, but not derailed regional economic recovery,” said Mark Billington, Managing Director International, ICAEW. “Moving forward, progress on vaccination will continue to be an important barometer for growth in the second half of 2021. We expect that countries which are able to contain new Covid-19 cases and reach high levels of vaccinations will outperform the rest of the region and be better placed for recovery.”
Major uncertainties which could affect post-pandemic recovery still remain, such as vaccine effectiveness in halting the spread of new coronavirus variants, consumer caution, and the return of inflation, which could mean that GDP will remain below potential. Inflation concerns have continued to increase since the start of 2021, and it is expected to rise in the next few months across the region. The Philippines’ inflation rate is expected to remain elevated above four percent for most of this year, while inflation in Malaysia has already reached 3.4 percent.
VietNam Economic News