World Bank revises Vietnam GDP forecast down to 5.3%

The World Bank has lowered Vietnam’s GDP projection this year to 5.3%, down 0.2% against its forecast in January and much lower than other international institutions’ predictions.

The revision is derived from the challenges in terms of rising infections and the country’s vulnerability to external shocks due to its high economic openness.

The bank expected Vietnam's economic expansion in 2022 to reach 5.3%, then stabilize at around 6.5% under the scenario in which domestic and international travel restrictions are lifted.

In a report, WB said the service industry is likely to gradually rebound given the recovery of consumer confidence and international arrivals by the middle of this year. However, due to stagnant growth in key markets like the U.S., EU, and China, Vietnam’s export turnover of processed and manufactured goods is expected to expand at a slower rate.

The bank believed that negative risks induced by trade rate shock and sanctions related to the Russia-Ukraine conflict may be exacerbated if a new strain of Covid-19 arises.

Furthermore, the recovery rate of domestic private demand, which is still relatively slow, demonstrates consumer and investor caution. The current outbreak may also cause temporary disruptions in labor supply and production, it noted.

According to WB, Vietnam's economy has been rapidly recovering since the beginning of the year. The impact on its economic growth can be minimized if the government offers a drastic support package through fiscal policy. Monetary policy must be eased, but caution should be maintained in order to control risks in the financial sector.

In the worst-case scenario, the WB forecasts Vietnam’s GDP at 4% in 2022, and rebounding to 6% and 6.5% in 2023 and 2024 respectively.

Poverty is expected to fall as GDP growth recovers to pre-pandemic levels, but the crisis will have a long-term impact on rising inequality. This can impact the country's people and economic capital.

Assets sold will not generate future incomes, and quality discrepancies and educational disruptions during the Covid-19 crisis will influence people’s accumulation and lifelong income potential.

The bank has also revised down its GDP forecast for the entire East Asia and Pacific Region to 5% for 2022 from 5.4% last October, with the largest regional player China possibly going as low as 4%.

Vietnam's GDP in the WB's estimation is much lower than that of other international institutions. ADB on Wednesday stated that it anticipated Vietnam’s growth rate to converge to its pre-pandemic level of 6.5% in 2022 and 6.7% in 2023 thanks to “high vaccination coverage, the shift to a more flexible pandemic containment approach, expanding trade, and the government’s economic recovery and development program.”

HSBC last Thursday lowered Vietnam’s GDP forecast by 0.3% to 6.2%, due to the impact of the global fuel shortage. Fitch Ratings in a release last Monday expected Vietnam’s GDP to accelerate to 6.1% in 2022 and 6.3% in 2023 from 2.6% in 2021, led by a recovery in domestic demand, strong exports and high FDI inflows, particularly in the manufacturing sector. Previously, in March, IMF estimated the country’s economic expansion at 6.6%.

Despite the lower GDP predictions from these international financial institutions, JPMorgan Asset Management has picked Vietnam as one of the three hottest Southeast Asian markets that may offer relative safety to investors, according to CNBC.

Desmond Loh, a portfolio manager at JPMorgan Asset Management, believed that Vietnam was a “star performer in the past few years” in economic resiliency and growth.

The country is one of the few economies globally to have seen positive economic growth throughout the pandemic, he added.

“To capitalize on the growth, we are positioned in high-quality consumer proxies and banks,” he said, without naming specific stocks.

The other top picks were Indonesia and Singapore, according to Goldman Sachs and JPMorgan.

Indonesia’s Jakarta Composite has risen more than 7% this year, while Vietnam’s VN-Index is up about 1% in the same period. Singapore’s Straits Times Index has gained more than 9%, according to CNBC.