Vietnam Economy 2021: prospects and potential risks, Vietnam Economy 2021

Vietnam Economy 2021: prospects and potential risks

The IMF raised its forecast of global economic growth to 6%, showing a bright outlook for the world economy in 2021. That will certainly have a positive impact on Vietnam’s economy.

Vietnam’s economy is expected to continue growing in 2021. Image: VIR

It is also important to reiterate that this is the highest growth rate since the 1970s, mainly due to the unprecedented policies of countries to overcome the Covid-19 pandemic, which is also significantly higher than those in the response to the Covid-19 pandemic with a forecast of 5.1% at the end of January 2021, even nearly double the level forecast in October last year.

In fact, not only the International Monetary Fund (IMF) but many international organizations have made more positive assessments of the global economy in 2021. There are many reasons for such forecasts, one of the most important reasons is the US $1.9 trillion bailout package.

The US economic outlook was clearly brighter after President Joe Biden approved the largest bailout package. The IMF even predicted that the US economy would grow 6.4% this year.

Not only the US but also the Asian economy is growing again. Korea, Japan are all among these. The Chinese economy is showing signs of recovery. Economies of ASEAN countries, except Myanmar, showed signs of recovery. In which, Singapore is the country with the strongest improvement in manufacturing and services with a PMI index of 55.2. Followed by the Philippines, with a PMI of 52.5…

The opportunities and the risks for Vietnam’s Economy

Apart from the European region still struggling with difficulties, Vietnam’s major economic partners are in a recovery trend. That will bring opportunities for Vietnam’s economy this year when global trade and investment flows will grow again. That is also the reason why the IMF also predicted that Vietnam’s economy will grow by 6% this year.

The prospects are bright, but the risks and challenges are not deniable. Because despite the trend of recovery, the world economy still has many uncertainties, risks, and challenges.

The US is expected to continue the measures to contain China in terms of economy – trade – technology and can strengthen alliances with some countries to implement these measures.

The covid-19 epidemic and its variants are also complicated, always present the risk of an outbreak of the next wave. If the epidemic breaks out again, countries are forced to take measures to tighten them. At that time, the supply chain to the main export markets of Vietnam such as China, the US, the EU … will also be interrupted. Furthermore, despite many changes in research and access to vaccines, the risk of disruption of the vaccine supply chain cannot be ruled out.

That is just the risk of the global economy. As for the Vietnamese economy, fiscal risks also increase when the Government has to spend more than revenue to stimulate economic recovery. Not to mention there are bad debt risks in the financial sector, or social risks arise due to people and businesses facing financial difficulties…

And another big risk of not only Vietnam’s economy but also the global economy is that inflation is likely to rise again. The IMF also forecasts that, in the next few months, global inflation may fluctuate strongly because commodity prices have fallen to a record low level one year ago. Now when the economy recovers, prices will increase rapidly.

In Vietnam, although currently, inflation is well controlled, with an average 3-month CPI of 0.29%, the lowest in the past 20 years. But unlike last year (CPI moves in a decreasing trend), this year, it will increase gradually. In the next few months, CPI is likely to move in an uptrend, especially when commodity investment, production – business, import-export activities resume bustling.

Therefore, although the outlook is bright, it is necessary to continue to monitor the situation to have a timely policy response, because lessons learned show that, in any case, macroeconomic stability is always is an important foundation for the economy to recover.

ASL LAW is the top-tier Vietnam law firm for doing business in Vietnam. If you need any advice, please contact us for further information or collaboration.

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