According to World bank, Vietnam’s development over the past 30 years has been remarkable. Economic and political reforms under Đổi Mới, launched in 1986, have spurred rapid economic growth, transforming what was then one of the world’s poorest nations into a lower middle-income country. Between 2002 and 2018, GDP per capita increased by 2.7 times, reaching over US$2,700 in 2019, and more than 45 million people were lifted out of poverty. Poverty rates declined sharply from over 70 percent to below 6 percent (US$3.2/day PPP). The vast majority of Vietnam’s remaining poor – 86 percent – are ethnic minorities.
In 2019, Vietnam’s Economic Growth continued to show fundamental strength and resilience, supported by robust domestic demand and export-oriented manufacturing. Real GDP grew by an estimated 7 percent in 2019, similar to 2018, one of the fastest growth rates in the region. This strong Economic Growth is a result of high domestic demand, a strong manufacturing and processing industry, and high Foreign Direct Investment (FDI) and this remarkable Economic Growth is accompanied by three bright spots:
Firstly, economic growth comes from all regions showing a fairly uniform rise in economic activity.
Secondly, private sector plays a key role as a contributor to Vietnam’s Economic Growth. Private consumption showed a strong recovery of aggregate demand with an increase of 11.7% over the previous year. Private investment still retained the previous year’s growth rate of 18.5% in the context of lower social investment growth compared to the previous year.
Third, the foreign economic front broke impressively. Import and export activities set a new record with an annual export surplus of 7.2 billion USD in 2019, up 147% from the previous year. Especially, for the first time, the private sector has higher export growth rate than the foreign invested sector (15.9% compared to 12.9%).
Vietnam’s Economy to Grow Fastest in Southeast Asia Despite COVID-19: According to ADB (Asia Development Bank)
From the date Covid 19 started till now, the Vietnam’s economy also suffered from the bad effects by the ongoing epidemic, due to its deep integration with the global economy; however, it also has shown remarkable resilience. The Vietnamese economy grew 2.9% last year from a year ago, according to government estimates released in late December.
Despite being modest, these rates are encouraging considering that Vietnam is one of few countries that achieved positive growth during the pandemic. That’s better than China’s forecast-beating 2.3% growth during the same period. With business activities resuming normal operations from mid-2020, Vietnam’s economy regained its momentum going into the second half of the year.
“With this performance, Vietnam has delivered one of the highest growth (rates) in a year where the rest of the world were in deep recessions,” economists from Bank of America Global Research said in a report this month.
Some economists have over the past years questioned the veracity of Vietnam’s gross domestic product (GDP) data. Nevertheless, many economists appeared to be optimistic that the country’s economic growth will accelerate this year.
That strong economic run will likely continue this year, said the Bank of America economists.
The bank forecast the Vietnamese economy growing 9.3% in 2021 — a much higher growth rate than the 6.7% expansion projected by the World Bank.
How Vietnam can accomplish that economic growth amid the adverse effect of Covid 19 on all other economies? Here’s a look at how Vietnam became the top-performing economy in the region, and what lies ahead for the country.
Effort of the whole society to contain the Covid 19
Despite neighboring China — where Covid-19 was first detected — Vietnam has reported just over 2,500 infections and 35 deaths as of Tuesday 23rd March 2021, according to data compiled by Vietnam Ministry of Health.
The country’s handling of the virus outbreak was internationally hailed as a model for other developing nations to follow, and helped its economy to continue growing throughout 2020.
Government strategy to support business activities
To combat the crisis caused to production and business activities, the government launched a US$10.8 billion (about 0.4 percent of GDP) credit support package in early March, which includes policies to restructure loan terms and reduce interest rates and fees. In addition, the government has also offered two budget support packages of US$1.3 billion, which include a reduction in taxes and fees for affected companies and an extension of tax payment schedules. Currently, Vietnam still intends to increase these support packages.
The central State Bank of Vietnam (SBV) has also lowered the key interest rate from 0.5 percent to 1 percentage points. The central bank reduced maximum interest rates for deposits in the Vietnamese Dong (VNDs) denominated deposit accounts with maturities of less than six months and the maximum interest rates for short-term loans in VNDs for priority areas.
These above incentives offered by the Vietnamese government to combat the effects of COVID-19 have been helping Vietnam’s economy to bounce back after COVID-19
Vietnam’s manufacturing sector was widely credited for the economy’s outperformance last year, with production growing on the back of steady export demand. That’s a trend that will persist in the coming years, said economists.
“Considering that Vietnam has been a major beneficiary of the supply chain relocation/diversification trend out of China over the past several years, we see large scope for growth in Vietnamese exports in the years to come,” Fitch Solutions said in a December report.
The Southeast Asian country has also inked several new trade agreements — such as with the U.K. and European Union — which could further boost trade flows, the consultancy added.
Services sector recovery
Vietnam’s services sector, which was badly hit in the pandemic, picked up toward the end of 2020.
Economists said the extent of the recovery in services — especially in tourism — will determine how quickly Vietnam’s economy will return to its pre-pandemic path.
Leather described the outlook for tourism as “poor.” Still, his forecast of a 10% growth for Vietnam this year is one of the most optimistic in the market.
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