04 Oct 2021
As the vaccination rollout steps up in Vietnam and case numbers fall, domestic reopening is not far away, according to DBS economist Chua Han Teng in a report on Monday.
He added that foreign domestic investment (FDI) will still be key to drive growth, whilst manufacturing activity and exports will also expand.
In Q3, the Vietnamese economy contracted 6.2% year-on-year, due to the restrictions to contain the Delta variant which led to services and manufacturing activity collapsing.
Chua added: "In our view, the multi-decade decline in Q3 makes it difficult for growth to recapture last year's 2.9% expansion, much less the government's official GDP target range of 6-6.5%.”
Moreover, DBS Group Research reduced its growth forecast for this year to 1.8% from a previous 5.0%. The consumer price index inflation average also declined to 2.1% from a prior 3.3%.
In contrast, next year is looking more positive for Vietnam, DBS Group Research has increased its GDP target for 2022 to 8.0%, compared to a previous 6.8%.
"We expect retail and recreation mobility to improve further amid looser curbs and greater adaptation towards 'living with the virus'. Retail sales and 'accommodation and food services', which saw significant double-digit contractions in Q3 2021, are therefore likely to concomitantly rebound and recover into 2022," Chua continued.
In addition, digitalisation and tech adoption is set to increase in Vietnam as part of the "new normal".
According to the Google, Temasek and Bain e-Conomy SEA 2020 report, the country’s digital economy possesses robust growth potential, with anticipated growth of 29% on a compound annual growth rate basis per year from 2020 to 2025 to hit US$52 billion by 2025. Indeed, last year Vietnam reported the strongest growth among Asean-6, a 16% rise compared to 2019.