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Positive signs for economic development in 2021

It is difficult to predict Vietnam’s economy in 2021, especially with Covid-19 still raging. However, the survey results of CEL Company have showed there are many positive signs.

Difficult to accurately predict

An annual enterprise survey in Vietnam on “Business Results 2020 & Vision 2021″ in the supply sector recently released by CEL Company shows the prediction of Vietnam’s economy in 2021 is a difficult job, especially amid the Covid-19 pandemic.

The domestic consumption still grows, because Vietnam well controls Covid-19, the disbursement of public investment is high and FDI capital strongly flows into Vietnam.

But next year’s growth in consumption will face obstacles. First, a large number of workers of the airline, hotel and the catering sectors, especially tourism, will still suffer from difficulties.

For example, the tourism revenue of Khanh Hoa province for the year is only equivalent to one quarter of 2019, and according to Savills, the number of new rooms for 3-5 star hotels decreases by 13% year-on-year. Thereby, purchases of this group decrease. Until Vietnam reopens tourism, the lack of international tourists also reduces consumption in the economy, especially from the two highly promising markets of China and South Korea.

In addition, the amount of remittances also decreases. According to World Bank estimates, the amount of remittances worldwide may decrease by 19.7% to US $445 billion. However, the situation in Vietnam has improved. After eight months of remittances to HCM City decreased, the amount of remittances increased by 2% in September, and it is expected the growth for the whole year is 0.82%. But it is difficult for Vietnam to repeat last year’s 4.4% increase. With such challenges, the Vietnam’s consumption will struggle to achieve explosive growth in the next year.

Due to the pandemic, the Government budget is also seriously affected. The decline in revenue will strongly impact the budget spending in the next year.

Due to good disease control, Vietnam has not yet used major stimulus packages. The deficit this year is expected to increase to 5.4%, exceeding the allowed level of the National Assembly of 3% of GDP. However, because of the effective operation of the economy, this deficit is not considered a high level compared to the general level of the world.

The money supply in the world and domestic markets is high, leading to low interest rates, Government bonds are bought higher than those the bid level, which will be an advantage for Vietnam to have space to borrow to boost the economy in the following years. Another advantage when Vietnam applies recalculated GDP is that public debt will decrease from 59.6% to 41.9%. High foreign exchange reserves and abundant liquidation of banks will also be positive points for the Government to plan more effective stimulus packages.

Bright spot for public investment capital disbursement

Public investment disbursement is also a bright spot for 2020. Considering public investment as the most important driver for growth in 2020, the Government has reformed, leading to the increase in disbursement of public investment of 10% year-on-year. However, in the final months of the year, there is still nearly US$10 billion of public investment capital that needs to be disbursed, and a part of that may be disbursed in the next year. The economy in 2021 is still difficult, so public investment will still be the main task. This requires the Government to continue to implement administrative reforms to promote more effective disbursement from the beginning of next year.

In 2020, the ratification of the EVFTA has created many positive effects. Vietnam’s agricultural products have gained more market share and their value has increased in the EU. Also, thanks to the acumen of firms, for example, firms in garment industry have sought alternative products, such as masks, and medical protective gear, which has helped them continue to maintain production and export. More importantly, these firms are ready to receive more orders from markets strongly affected by the pandemic such as Bangladesh, India and Myanmar. The bright spot on FTA and production stability will help Vietnamese firms have the opportunity to gain more market share even when international demand has not yet recovered to the level in 2019.

A bright spot related to the stability and FTA of Vietnam is the shift of FDI inflows. Compared to other regional countries, Vietnam is not only more stable in the production continuity, but also has political stability. When commercial flights are resumed, FDI inflows will continue to increase and disburse sharply into Vietnam.

The research team thinks that 2021 will be a difficult year. However, Vietnam still has advantages in continuing to grow in the coming year. The first six months of next year will be a period when the domestic market, public investment and exports play a key role. In the second half of the year, in the best scenario, the recovery of major economies and reopening of tourist flights will make for a stronger recovery.

If Vietnam continues to focus on controlling pandemic, in all circumstances, Vietnam’s economy will grow and the level of growth will depend on the pandemic in the world. According to the CEL survey for senior managers in October 2020, 77% of managers thought their business situation will be further improved . Only 8% that the business situation would develop in a pessimistic direction.

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