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Vietnam’s recovery is set to gather momentum in 2022 as domestic demand rebounds and export performance remains strong, according to Fitch Ratings, which recently said improving levels of vaccination should reduce the risk that the recovery is set back by further COVID-19 outbreaks. However, the evolution of the pandemic remains subject to uncertainties.
Vietnam’s economic growth in 2021, at 2.6 per cent, was much weaker than the 7 per cent that we had expected in April 2021, when Fitch affirmed Vietnam’s rating at ‘BB’ and revised the outlook to positive, from stable.
This partly reflected a 6 per cent year-on-year (YoY) contraction in real gross domestic product (GDP) in the third quarter (Q3) of 2021 as the authorities moved to control a surge in COVID-19 cases.
Vietnam’s recovery is set to gather momentum in 2022 as domestic demand rebounds and export performance remains strong, according to Fitch Ratings, which recently said improving levels of vaccination should reduce the risk that the recovery is set back by further COVID-19 outbreaks. However, the evolution of the pandemic remains subject to uncertainties.
Further pandemic-related shocks, while possible, are unlikely to be so severe, because the government has shifted from a ‘zero COVID’ approach to one of flexible adaptation as vaccination rates have increased, Fitch said in a release.
Fitch expects growth in the country to accelerate to 7.9 per cent in 2022 and 6.5 per cent in 2023 as the recovery becomes established. This partly reflects the low base set in 2021. Vietnam has also had less economic scarring than many emerging markets, as it is one of the few countries that did not experience an annual contraction in GDP amid the pandemic shock.
Growth will be led by exports, which rose by 19 per cent in 2021 in US dollar terms. Fitch expects goods demand growth to decelerate in the developed world in 2022 as activity normalises and services demand picks up.
However, Vietnam’s export sector should remain a regional outperformer, benefitting from its cost competitiveness, diversion of trade from China and a variety of key trade agreements, Fitch said.
The temporary supply disruptions in Q3 2021 do not appear to have weakened Vietnam’s attractiveness for export-related foreign investment.
Inward investment remained strong in 2021, at $19.7 billion, down only slightly from $20 billion in 2020. The strong export performance that Fitch expects in 2022-23 will catalyse domestic investment and consumption, through positive spill-overs, for example from job creation.
Although Vietnam’s economy continued to grow in 2021, the gap between its GDP per capita and the median of the ‘BB’ peer group widened. Fitch’s baseline forecast of a return to rapid growth rates, coupled with appreciation of the Vietnamese currency, should mean the gap with rating peers begins to narrow again in 2022-2023.
Fibre2Fashion News Desk (DS)
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