Standard Chartered expect Vietnam’s GDP growth to recover to 5.5% y/y in Q4-2021. The Bank sees downside risks to the forecast – and a potential interest rate cut – if the economic impact of Vietnam’s COVID outbreak is prolonged. Such a scenario could affect Vietnam’s external position.

According to Standard Chartered, GDP growth in Q3 may likely have slowed to 1.9% y/y, from 6.6% in Q2, as the pandemic hit the economy. The Bank recently lowered our 2021 and 2022 growth forecasts to 4.7% (from 6.5%) and 7.0% (from 7.3%), respectively.

According to ADB in a recent 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 Viet Nam’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 labor, hurting especially labor-intensive manufacturing and lowering output. The purchasing managers’ index hovered below 50 from June to August, signaling a deceleration in manufacturing. 

Because of this, industry growth is forecast to slow to 5.0% in 2021 from the prepandemic 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.

As of 15 September, 33% of the population had received a first dose of a COVID-19 vaccine, but less than 6% were fully vaccinated. While the rapid first-dose vaccine rollout will help reduce infections and deaths, the low fully vaccinated rate could prevent a full return to work in 2021, as only fully vaccinated people can go to work. 

Excessive and paper-based procedures, especially in the issuance of travel certificates, have disrupted labor mobility and the food supply chain, exacerbating the impact of the pandemic on the economy.

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.

Cumbersome and unclear procedures constrain the disbursement of needed fiscal support for firms and people affected by the COVID-19 pandemic. As of 31 August 2021, only about 32% of a $1 billion social security support program had been disbursed.