At the announcement of the Review of Vietnam’s Economic Situation with the topic “What will the new normal state in Vietnam look like?” The economic impact of Covid-19 ”this afternoon (July 30), the World Bank (WB) forecasts Vietnam’s GDP growth this year 2.8%, ranked 5th in the world and will achieve growth. 6.7% by 2021. The new forecast is 2.1 percentage points lower than the agency’s latest outlook.
The World Bank forecasts Vietnam’s GDP growth to reach 2.8% this year.
A representative of the World Bank said that the Covid-19 epidemic was not only a medical shock, but also an economic shock. Except for East Asia, all other regions experienced negative growth. Therefore, Vietnam’s GDP growth of 2.8% has been very positive.
In addition, the WB representative said that the Covid-19 epidemic had a much smaller medical impact than the economic losses. However, Vietnam has the ability to absorb and respond well to this shock. Previously, VEPR forecasted that Vietnam’s GDP growth may reach 3.8% in the positive scenario and the worst case scenario is 2.2%. However, this scenario does not take into account the possible return factor.
Acting World Bank Director Stefanie Stallmeister said that Vietnam should seek new growth drivers to offset traditional forces such as external demand and weakening domestic consumption.
The government should change its approach by combining three factors such as cautiously opening borders, implementing a fiscal stimulus package on a larger scale and providing the right support to affected businesses and people most heavily affected in society.
Acting World Bank director noted that Covid-19 epidemic affected almost all people but the impact level was different so that inequality could arise. Therefore, this requires the attention of the Government.
WB chief economist Jacques Morisset analyzed that the number of Covid-19 cases in Vietnam had only a minor medical impact, but the economic impacts could be seen as severe. If Vietnam’s GDP growth in 2019 is 6.97%, it will have decreased by nearly 7 percentage points to 0.36% in the second quarter of 2020. This is the biggest economic shock, dating back to 1996.
However, the chief economist of the World Bank fully believed that Vietnam could withstand the economic shock called Covid-19. He explained that, firstly, the current account balance despite a sharp decline due to declining revenue from tourism, remittances, import-export activities, is still positive this year. Secondly, the budget deficit may increase from negative 4% last year to negative 6% this year due to declining revenues due to slowing growth and the implementation of policies on tax deferral, support for businesses and security for the people. However, the budget deficit soon recovered when looking at the reality of 2019.
Pointing to one of the challenges facing the Vietnamese economy in the near future, Mr. Jacques said that it was an “economic trap due to Covid-19 epidemic”. In the past decades, the driving force of the economy was exports and domestic consumption, contributing 75% to GDP growth in 2016-2019. These dynamics will be difficult to maintain after the position when Covid-19 epidemic occurred. Demand from abroad will decrease as many countries around the world are still affected by the Covid-19 pandemic, contributing to a slowdown in the growth of export of goods and tourism. At the same time, the blockade in Da Nang due to the recognition of new cases in the community makes travel, consumption and investment activities cannot increase as in previous years.
Therefore, the World Bank recommends 3 solutions. First of all, Vietnam should be cautious step by step removing restrictions on international routes to ensure domestic safety.
Second, Vietnam should accelerate the disbursement of public investment to increase domestic demand. Finally, the support needs to be in the right audience, especially the most severely affected industries such as tourism, manufacturing and processing for export Recommended incentive books.
In addition, the World Bank believes that Vietnam can take advantage of some of the global trends being accelerated by Covid-19, such as building strategic alliances with countries with low infection rates, boosting revenue. Attracting businesses, investors planning to diversify supply chains and the digital economy.