Vietnam one of few bright spots in global economy

4 January, 2021 12:00 AM printer

HANOI: Vietnam begins 2021 with strong growth prospects underpinned by robust exports and FDI flows after having successfully contained the Covid-19 pandemic.

Forecasts are unanimous that the economy is on track for a strong recovery, with HSBC projecting 8.1 percent growth this year and the World Bank, 6.8 percent, report agencies.

With the country being one of the few in the world to achieve positive growth last year, of 2.9 percent, Prime Minister Nguyen Xuan Phuc said earlier this week that the government targets growth of 6.5 percent this year, up half a percentage point from the earlier target, after the country succeeded in containing the novel coronavirus, clearing the decks for an economic rebound.

Exports and foreign direct investment are set to be the main drivers. World Bank analysts said in a recent note: “The strong management of the Covid-19 crisis has been Vietnam’s best promotional tool, encouraging foreign companies to reallocate their production activities to Vietnam from other countries where their factories are still closed, thus contributing to the country’s robust export performance.”

Economist Ngo Tri Long said growth of 6.5 percent or higher is achievable, but depends on how the Covid-19 situation pans out this year since Vietnam’s economy is heavily dependent on trade.

Vietnam’s exports grew at 6.5 percent in 2020, down from from 8.1 percent in 2019. Textile and garment exports, the third largest earner, declined for the first time in 25 years, falling by a substantial 10.2 percent.

But most other items making up the top five saw growth. Electronics and computer exports were up 24.4 percent and machinery was up 47.8 percent.

Long said this indicated the likelihood of robust growth this year if global demand rises.

“With the Covid-19 vaccine becoming increasingly available in many countries, the world can expect a recovery in demand which will largely benefit Vietnamese exporters of garments, agriculture produce and other products.”

Free trade agreements are expected to be another driver of growth. Despite the pandemic, the EU-Vietnam Free Trade Agreement came into effect last year while the Vietnam - U.K. Free Trade Agreement was signed.

Vietnam also inked the Regional Comprehensive Economic Partnership, the world’s largest trade deal, which covers nearly a third of global GDP.

Tim Evans, CEO of HSBC Vietnam, said: “These agreements will help Vietnam diversify export markets and trading partners, which is also one of the best ways to minimize risks from excessive dependence on a specific trading partner which Covid-19 has made apparent.”

FDI is likely to surge since experts believe the shifting of production out of China will continue.

Although foreign direct investment pledges in Vietnam has dropped by 25 percent last year to $28.5 billion due to travel restrictions and dampened investor sentiment, foreign companies still poured $6.4 billion into existing FDI projects, up 10.6 percent year-on-year, showing that they were still confident in their investment in Vietnam and expect further growth.