In details, it revises down the GDP growth forecast to 3.8 per cent in 2021 from the 6.7 per cent projection in previous version.
Assuming the Covid-19 pandemic is brought under control by the end of 2021 and full vaccination covers 70 per cent of the population by the second quarter of 2022, the growth forecast for next year is revised to 6.5 per cent, which is still lower than the earlier projection.
The inflation rate forecast is also revised down, to 2.8 per cent for 2021, as subdued domestic demand has pushed the rate to its lowest level since 2016. The inflation rate is forecast at 3.5 per cent in 2022 as growth accelerates.
The deterioration in the external current account this year and next is expected to be worse than earlier projection. A modest current account deficit equal to 1.0 per cent of GDP is expected in 2021 since the impact of the pandemic on production will slow export growth over the rest of the year.
The current account is expected to return to a surplus, at 1.5 per cent of GDP in 2022, as exports increase on a revival in domestic production and external demand.
Nguyen Minh Cuong, principal country economist of ADB, stressed that Vietnam’s economic outlook in the near term is challenging.
The main risk to the outlook is a prolonged Covid-19 outbreak if the vaccination rate does not increase substantially.
Because vaccines are not reaching Vietnam fast enough, the government’s efforts to start up domestic Covid-19 vaccine manufacturing in 2021, combined with increased procurement from outside sources, will be crucial for the country to avert a health crisis caused by the pandemic.
The growth prospects for this year and next will also depend on the timely and sufficient provision of necessities, such as food and cash, to those affected by the outbreak.
He also noted that nonperforming loans could become a risk in 2022.
Moreover, cutting unnecessary administrative burdens and digitalizing government procedures will be critical for improving the efficiency of pandemic containment measures and to support recovery this year and next.
“The prolonged Covid-19 pandemic and extended lockdowns have weakened consumption and investment, hampering Vietnam’s growth prospects,” said ADB’s country director for Vietnam Andrew Jeffries.
But the Vietnamese economy will bounce back if the Covid-19 pandemic is brought under control by the end of 2021 and 70 per cent of the country’s population are vaccinated by the second quarter of 2022.
ADB remains bullish on the country’s prospects in the medium and long term. Growth could be aided by a revival of domestic demand, an acceleration in the disbursement of public investment, and an expansion to new export markets thanks to multiple free trade agreements and the expected global economic recovery.