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Economic update – The growth gather steam since 1Q22

Economics Note 12/01/2022    294


  • Vietnam’s real GDP grew 2.6% in 2021, slightly stronger than our forecast.
  • Macroeconomic stability has been solidified in 2021 with well-managed inflation, higher foreign exchange reserves and stable exchange rates.
  • We expect Vietnam’s GDP to grow 7.5% in 2022, fueled by the resumption of aviation and tourism, strong FDI inflows and the upcoming fiscal stimulus.

Vietnam’s economy recovered strongly in 4Q21

According to the General Statistics Office (GSO), Vietnam’s GDP rose 5.2% yoy in 4Q21, which was better than our expectation. Of the three main pillars of the economy, the service sector’s recovery exceeded our expectations the most. Specifically, the service sector grew 5.4% yoy in 4Q21, recovering from a decline of 8.6% yoy in 3Q21. It marked the highest quarterly growth for service sector since 1Q20, when the COVID-19 pandemic broke out. Meanwhile, the industry and construction sector rose 5.6% yoy in 4Q21, which is a strong improvement from a decline of 5.5% yoy in 3Q21 and equal to the growth rate of 5.6% in 4Q20.

Inflation well-managed

Vietnam’s headline inflation slowed to 1.8% yoy in Oct (vs. 2.1% yoy in the previous month). On month-on-month basis, headline CPI declined 0.2% vs. Nov level, as the transport CPI slumped 1.7% mom amid lower crude oil and the accommodation & construction materials price index dropped 0.5% mom. For 2021, headline CPI averaged at 1.8% yoy, which was far below the government’s target of 4.0%.

More stimulus packages are expected on the arrival

On Jan 11, 2022, the National Assembly approved a new economic stimulus package worth about VND342,050bn, equivalent to about 4.2% of Vietnam’s GDP in 2021. The economic stimulus package included: government spending on upgrading health system, social welfare, job support, tax reduction (2% value-added tax reduction), increase investment in transport infrastructure.

Re-ignite all growth engines

After a pullback in 3Q21, we see the economy is entering a ‘new normal’, supported by high vaccination roll out and eventual reopening. We expect 2022F GDP to grow 7.5% yoy, propelled by four growth engines: manufacturing and exports to resume expansion, resilient FDI amid global supply chain diversification; and domestic consumption to rebound following upcoming fiscal supports. We see picking up inflation, driven by both demand-pull and cost-push, pressure, is the major risk to economy. Other macro risks include the China slowdown might hinder the export growth and Covid-19 resurgence.

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