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HSBC Expects Bright Prospects for Vietnam’s Economy in 2021

Diep Nguyen
BizLIVE -

Vietnam is one of the few economies in 2020 to clock in positive growth - at a rate of 2.9% - thanks to a confluence of positive factors including successful early virus containment, quick resumption of work and booming electronics exports.

HSBC Expects Bright Prospects for Vietnam’s Economy in 2021
Recently, HSBC Vietnam released the report Vietnam at a glance: Shining in the year like other, in the report, HSBC analyzed the factors that helped Vietnam’s economy to sustain growth in 2020 and laid the foundation for further growth in 2021.
Thanks to its successful COVID-19 containment, Vietnam saw one of the highest GDP growth rates in the world in 2020.
Vietnam will start 2021 with a key political event in January that will shape its economic agenda for the next five years.
HSBC remains confident the economy will continue to shine and expect GDP to grow at a strong pace of 7.6% in 2021
Unprecedented resilience
Despite unprecedented challenges, Vietnam’s economy has shown remarkable resilience. It’s one of the few economies in 2020 to clock in positive growth - at a rate of 2.9% - thanks to a confluence of positive factors including successful early virus containment, quick resumption of work and booming electronics exports. 
Vietnam’s external sector has been able to withstand supply chain disruptions and is on a steady recovery path. Meanwhile, domestic demand also held up well, with relatively resilient private consumption, thanks to minimal virus disruption.
A new 5-year plan
With a strong end to wrap up 2020, Vietnam will start 2021 with a key political event, the 13th National Party Congress, which will set new economic priorities for the next 5-10 years. All eyes will be fixed on how Vietnam promotes economic relationships with major trading partners as well as its ongoing reform push. In particular, HSBC thinks infrastructure development and a possible acceleration of SOE equitisation may be two issues on the agenda.
A rosy 2021
Despite lingering headwinds, we remain optimistic about Vietnam’s outlook. We believe it will benefit from numerous FTAs, consistent FDI inflows and a tech-led recovery. HSBC expects the economy to rebound robustly with GDP growth of 7.6% in 2021. 
Meanwhile, inflation pressure is likely to continue to moderate. We forecast headline inflation to average around 3.3% in 2021, comfortably below the SBV’s 4% inflation ceiling.
Strong bounce to conclude 2020
What a year! It goes without saying 2020 was a challenging year for the global economy. But, in many respects, Vietnam has been in a league of its own. Thanks to the authorities’ swift containment measures and robust contact tracing efforts, Vietnam only had a 3-weeknationwide lockdown in April. 
Even though there was a renewed resurgence of COVID-19 in July, it was quickly contained in a month. With a population of over 95 million, Vietnam has only a total case load of a little over 1,500 so far and minimal deaths. While the economy slowed sharply, it was nonetheless one of the few economies that saw positive growth in 2020.
Vietnam’s 4Q GDP growth recovered at a stronger-than-expected pace of 4.5%, bringing annual growth to 2.9% in 2020, slightly exceeding market and HSBC expectations of 2.6%. 
Looking at the breakdown, steady growth in 4Q was led by solid expansion in manufacturing, accounting for 30% of headline growth. Manufacturing activity rose more than 8% y-o-y, similar to the pace during the pre-pandemic period. Accordingly, exports grew 17.6% y-o-y in December, thanks largely to ongoing remarkable growth in computer and phone electronics (36% y-o-y) as well as machine equipment (72% y-o-y).
Thanks to its quick virus containment that has led to a swift resumption of production, Vietnam’s exports have outperformed the region, growing 6.5% in 2020. But this is a mixed picture. In fact, exports in traditional sectors (e.g. textile and footwear) fell 10%, as demand in Europe and the US was hard hit due to lockdowns. 
That said, there are always two sides of a coin. While the pandemic hit one of the key pillars in Vietnam’s exports, export of products in high demand during the pandemic was boosted significantly. This includes 10% growth in electronics exports, given digitization and working from home arrangements, in addition to a 48% increase in machine equipment and 15% rise in wooden products. In particular, Vietnam’s wooden exports to the US (the dominant buyer) jumped over 30%, as housing demand in the US has soared during the pandemic.

DIEP NGUYEN