Economic update – Poised for a recovery ahead

• We think the sharp decline in 3Q21 makes the economic growth hard to capture the previous forecast of 3.9% for 2021.
• Vietnam is poised for a gradual recovery since 1Q22 driven by picking up vaccination, resuming exports and manufacturing expansion and ongoing stimulus packages
• We lower GDP growth to 2.2% for 2021 but upgrade that to 7.5% for 2022

3Q21 GDP missed our expectations as Covid-19 impact lingered
According to General Statistics Office (GSO), Vietnam’s real GDP fell 6.2% yoy in 3Q21, i.e. the slowest quarterly growth rate ever recorded by GSO. All aspects of the economy were under downward pressure in 3Q21. The agriculture, forestry and fishery sector edged up 1.0% yoy in 3Q21, the industry and construction sector dropped 5.0% yoy while the service sector fell 9.3% yoy. We think the sharp decline in 3Q21 makes the economic growth hard to capture the previous forecast of 3.9%. Therefore, we lower our 2021 GDP growth forecast to 2.2%.

We do not see the inflation risk in the next two quarters
Vietnam’s headline inflation slowed to 2.1% yoy in Sep (vs, 2.8% yoy in the previous month. We lower our forecast of the 2021F average headline CPI increase of 2.2% yoy (+/- 0.2 percentage points). We expect inflation pressure to remain low in the next two quarters before rising since 2Q22 due to (1) the recovery of domestic demand and (2) no longer government price reduction for electricity, water and telecommunications as in the second half of 2021 and (3) high energy prices expected in 2022F.

We see some bottlenecks that could hinder the recovery in 4Q21
There are some obstacles that could hinder the strong recovery of Vietnam’s economy in the fourth quarter of 2021, including lower vaccination rate (especially in rural areas), lower people’s income amid prolonged pandemic, inconsistent anti-pandemic policies and labor shortages in Southern provinces.
… but the outlook is cleared since 1Q22 onward
We optimistic about Vietnam’s economy outlook in 2022 thanks to (1) strong external demand amid on-track recovery of global economy, (2) higher vaccination rate with 70-75% population fully vaccinated against coronavirus, (3) the resume of international commercial flight and the revival of tourism (4) loosening monetary and fiscal policies expected in 1H22. We project Vietnam’s GDP rising by 7.5% in 2022, with resilient growth in all sectors. By sector, the industry and construction sector is forecasted to rise by 8.6%, followed by the service sector (+8.1%) and the agriculture, forestry and fishery sector (+2.8%).

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