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Economic Update – Lower growth outlook as the evolution of pandemic

Economics Note 09/08/2021    346


  • Since mid-Jun, Vietnam has experienced a sharp pick-up in infection cases and strict social distancing protocols across nation.
  • We revised down 2021F average inflation to 2.4% due to lower domestic demand and falling in prices of essential services
  • We lowered FY21F GDP growth rate to 5.5% from the previous 6.5% in baseline scenario.

The current wave casts a shadow on Vietnam’s macro in July

The service sector was hit hard as stricter social distancing protocols have been imposed since Jul across country. According to the General Statistics Office of Vietnam (GSO), gross retail sales of consumer goods and services declined for third month in a row to VND339tn in July (-8.3% mom and -19.3% yoy). The IHS Markit Purchasing Managers’ Index (PMI) of Vietnam in Jul stood at 45.1 pts, marking two consecutive months below 50 points. Index of Industrial Production (IIP) edged up only 2.2% yoy in Jul (vs. an increase of 6.8% yoy in Jun).

Several support policy packages were launched to ease the Covid burden

In Jul, the government issued Resolution No. 68/NQ-CP (“Resolution 68”) on a number of policies to support employees and employers facing difficulties due to the COVID-19 pandemic, worth a total of VND26 trillion. Soon after, the government issued Resolution No. 83/NQ-CP to agree on a plan to reduce electricity bills (phase 4) for electricity users affected by the fourth outbreak. The total amount of reduction in phrase 4 is estimated at VND2.5 trillion. The government also plan to reduce water supply and telecommunications fees for customers affected by the pandemic.

We cut 2021F average inflation to 2.4%

The government will slash utility prices, including electricity, water and telecom for both manufacturers and households which will partially lower the inflation pressure for the rest of 2021. As a result, we lowered our forecast for 2021F average CPI to 2.4% (+/- 0.2 percentage points) from previous 2.9%.

We deliver two GDP growth scenarios

As the 2H21 outlook will be dictated by the duration and intensity of the current Covid wave, we delivered two scenarios for Vietnam’s FY21F GDP growth. In the baseline scenario, we expect the fourth outbreak to be contained in Aug and forecast the economy to expand 5.5% yoy in 2021F. However, if the wave lasts longer, the pandemic’s negative impact on the services sector would prolong and be exacerbated; therefore, Vietnam’s 2021F GDP growth could slow to 5.0% yoy.

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