VEPR announced 3 scenarios with the GDP growth rates in 2021

Assoc.Prof.Dr. Pham The Anh - Expert in Macroeconomics, Head of Macroeconomics Division, NEUas Chairman of the Seminar
Recently, the Vietnam Institute for Economic and Policy Research (VEPR) - VNU University of Economics and Business held an online seminar to announce the Macroeconomic Report for the second quarter of 2021.At the seminar, Assoc.Prof.Dr. Pham The Anh who is an expert in macroeconomics, head of the Macroeconomics Division of the National Economics University (NEU) said that the global economy recovered in the first six months of 2021 thanks to the increasingly high percentage of Covid-19 vaccination in countries worldwide.

Some countries plan to reopen after the epidemic has been under control in the third quarter of 2021. In which, the US and Chinese economies have had the most outstanding recovery since the beginning of 2021. European economies are still in a state of continuous decline in the first six months of 2021. However, the ability of controlling the epidemic along with the expansion of the Covid-19 vaccination programs has helped many European countries open up and show signs of recovery.

Vietnam grew by 6.61% in the second quarter of 2021

According to VEPR, continuing the growth momentum since the third quarter of 2020, Vietnam's economy grew by 6.61% in the second quarter of 2021, higher than the growth rate of the same period in 2020 (0.36%).

In the first 6 months of 2021, the agriculture, forestry and fishery sector grew by 3.82%, the industry and construction sector by 8.36%, and the service sector by 3.96% over the same period last year. In 2020, the second quarter of 2020 recorded an increase of 3.83% in agriculture, 4.1% in forestry, and 4.96% in fisheries. In particular, the seafood industry grew strongly again thanks to the recovery in demand from foreign markets.

The industries, processing and manufacturing industries continued to play the leading role in the growth of the economy in the second quarter of 2021 at a rate of 13.84% and only lower than the same period in 2011 and 2018 during the period 2011 - 2021.

Assoc.Prof.Dr. Pham The Anh judged that the growth rate that Vietnam achieved was based on the following factors: The epidemic has been controlled well by the government from the end of the first quarter of 2021, helping to maintain the economic activities of the country.

The countries of the European Union (EU) are reopening; and enterprises, especially FDI enterprises, make good use of the EU - Vietnam Free Trade Agreement (EVFTA) to restore the processes of goods production and export to the EU market.

Besides, the progress of disbursement and construction of key public investment projects has been accelerated; a wave of trade and investment shifts to spread risks from the US - China trade conflict and disruptions of global supply chains; The macro-environment is stable, inflation is controlled at a low level helps creating an environment for the implementation of policies to support growth.

However, the outbreak of the Covid-19 epidemic again in the middle and end of the second quarter of 2021 has continued to disrupt the production process of local enterprises where the epidemic is in outbreak.

On the other hand, the weakness of Vietnam's economy also comes from internal risks such as large fiscal imbalance, slow pace and low level of development investment, especially in infrastructure; although the health of the banking-financial system has been gradually strengthened, it is still vulnerable; the heavy dependence of growth on the FDI sector, lack of autonomy on technology and raw materials.

At the same time, the quality of labor is low and slow to improve; low efficiency of public investment; The process of equitization of state-owned enterprises has been stalled, the businesses and institutions environment, although gradually improved, but have not fundamentally unleashed the strength of enterprises, which are also outstanding weaknesses of Vietnam.



Three scenarios to forecast economic growth

With the current epidemic situation, Pham The Anh informed that VEPR lowered its forecast for Vietnam's economic growth in 2021 compared to previous reports.

According to Pham The Anh, the economic outlook in the last months of this year depends heavily on the speed and scale of vaccination; effectiveness/side effects of disease prevention measures and packages of support and promote the growth of the country.

Based on the actual situation, VEPR offers three forecast scenarios with the assumption that Vietnam's major trading and investment partners will successfully deploy vaccination by the beginning of the fourth quarter of 2021 and control and resurgence of the epidemic, economic activities are restored, and the trade tensions and political uncertainty are eased.

Baseline scenario: The epidemic is controlled by the end of the third quarter of 2021, the vaccination against Covid-19 is deployed quickly and community immunity is achieved in the second quarter of 2022, the macro-economy keeps stable. Economic growth for the whole year is forecast at 4.5 5.1%.

Favorable scenario: The epidemic is controlled in August 2021, vaccination is accelerated and the community immunity is achieved in the first quarter of 2022, the macro-economy keeps stable. Economic growth for the whole year is forecast at 5.4 - 6.1%.

Adverse scenario: The epidemic cannot be controlled and economic activities cannot return to normal until the fourth quarter of 2021, the vaccination process is implemented slowly due to lack of supply source; policies to support people and businesses, restructuring and digital transformation were promoted, but services, trade and FDI attraction recovered slowly. At that time, Vietnam's economy in 2021 can only grow from 3.5 - 4.0%.

In general, Vietnam's economy is on track to recover in the first 6 months of 2021 but has complicated developments due to the spread of the disease at the end of the second quarter of 2021 and the beginning of the third quarter of 2021 negatively affect to people's lives, as well as the production process of enterprises, and to the recovery momentum of Vietnam's economic growth.

Therefore, VEPR made three recommendations:

Firstly, Vietnam needs an overall and consistent strategy to deal with epidemic situations; Inadequacies related to cross-contamination at isolation areas, medical declarations, disruptions in goods circulation due to extreme measures, lack of medical equipment, need to be concentrated resources to solve quickly.

Second, the Government and Ministries should urgently deploy and disburse the support packages to unemployed workers, especially those in the informal sector.

Third, fiscal policy should focus on promoting the disbursement of large infrastructure investment projects at the national level, laying the foundation for the post-pandemic recovery period. Along with that, accommodative monetary policy should be implemented with money supply growth must be controlled at an appropriate level (10%) and risk control measures at a moderate level.

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Duy Anh (Tran.)

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