World gdp growth forecast

*Vo Tri Thanh

Viet Nam has delivered its economic data in the first quarter. The overall picture is still optimistic with the gross domestic product (GDP) expanding nearly 4.5 per cent – among the best performers in the world. However, is this result good enough for the Southeast Asian country to securely triumph over its target set for the whole year?

The first quarter growth, though in the same range as the last quarter of 2020 which also stood at 4.48 per cent, was up from the 3.68 per cent recorded in the first quarter of last year.

The renewed outbreak of COVID-19 in some parts of the country, including the capital city of Ha Noi, adversely affected the first-quarter’s performance which fell below the Government’s expectation of 5.12 per cent and was lower than the 5.7 per cent expected by Bloomberg’s economists.

Despite that, Viet Nam has been widely praised for its economic achievements given all the uncertainty about the prolonged pandemic and uneven recovery globally. Viet Nam is still set to outperform most of the region.

Key indicators in the first three months have partly reflected Viet Nam’s good recovery.

Exports remained the country’s key economic growth driver with a value of US$77.4 billion during January-March, a rise of 22 per cent year-on-year. Viet Nam ran a trade surplus of more than $2 billion in the first quarter.

Pledged foreign direct investment (FDI) surged by 18.5 per cent year-on-year to $10.3 billion while disbursed FDI increased by 6.5 per cent to $4.1 billion.

Industrial production was expected to expand 6.5 per cent during the period, especially the main drivermanufacturing – electronic equipment, phones and accessories – climbing 9.5 per cent. The number of new businesses fell by 1.4 per cent and their total registered capital rose by 27.5 per cent.

Other sectors including agro-forestry-fishery, services sector, disbursement of public investment and State revenue improved significantly. Meanwhile, inflation was kept at a low level, rising by just 0.29 per cent in the first three months.

Both domestic and worldwide economists have maintained a positive forecast for Viet Nam’s economy since the end of last year. Many international organisations delivered a GDP forecast of around 7 per cent for Viet Nam in 2021. Meanwhile, Vietnamese Government has set the yearly growth target of 6.5 per cent, higher than the official target of 6 per cent set by the Parliament.

This optimism is based on Viet Nam’s performance in 2020 with impressive accomplishments in implementing the dual goals of combating the pandemic and maintaining economic growth. Viet Nam was among very few countries with positive growth in 2020. Adverse impacts on the economy and society were also minimised during the pandemic.

The year 2020 was seen a turbulent year when every country had to brave unprecedented challenges arising from COVID-19 to save people’s lives and diminish the impact on the economy. This year, economists have agreed the world is on track to recover, with strong growth in major economies which plummeted last year due to the disease and restriction measures.

In its March report, Fitch ratings expect global GDP to expand by 6.1 per cent, revised up from 5.3 per cent in its December forecast thanks to robust fiscal support in major economies. GDP outturns are projected at 6.2 per cent in the United States, 8.4 per cent in China and 4.7 per cent in the eurozone.

However, the recovery is also perceived with a conservative stance as it depends largely on the readiness and effectiveness of vaccines, as well as countries’ resilience to financial and inflation risks. The recovery in the current context is also associated with sustainable and green development, restructuring the economy and promoting innovation and digital transformation.

In Viet Nam, a period of three months is not long enough to fully reflect the challenges facing the country. Viet Nam has been doing very well in controlling the pandemic but the risk of fresh outbreaks is still high which could be seen in the resurgence of the virus in some northern provinces early this year. Besides, the vaccination process cannot be fast and as the Government has said, the prevalence of vaccination must wait until next year.

Strong recovery in some key sectors such as tourism and aviation is still a challenge as it depends heavily on the disease control in both home and foreign markets.

Although inflation in the first quarter was low at 0.29 per cent – the lowest for Q1 within 20 years, there is still inflation risk when oil prices climbed by more than 30 per cent compared to the end of last year and commodity prices are on the rise in global markets. Such a possibility may put pressure on monetary policy which must both support economic recovery (through low interest rates) and ensure macroeconomic stability, especially volatility in the stock market and real estate market.

In this context, consumption growth somewhat slowed and uncertainty in the global supply chain are also unrevealed problems in the long term. (The Suez Canal shutdown exposes another weak link in the global supply chain.)

The resurgence of the virus in some provinces early this year weighed on national Q1 GDP growth (below the Government’s expected rate of 5.12 per cent). Thus, to reach the year-end target of 6.5 per cent, GDP in the next quarters must increase by more than 7 per cent on average, which is a big challenge.

After the Q1 economic data, some international organisations have revised down their forecast for Viet Nam’s growth. The United Oversea Bank (UOB) lowered Viet Nam’s GDP growth to 6.7 per cent in 2021 from 7.1 per cent. Meanwhile, economists at Singapore’s Maybank Kim Eng revised Viet Nam’s economic growth from 6.8 per cent to 6.5 per cent.

However, most forecasts agreed with the latest virus wave being quashed and most restrictions now being lifted, Viet Nam’s economy should bounce back strongly over the coming quarters.

The new Government will take office this month and the transition will result in a certain delay in implementing policies. Hopefully, the new Government will quickly start working and take more drastic measures to improve the investment and business environment, push reform and economic restructuring, promote innovation and speed up disbursement of public investment. Public investment still plays important role in boosting growth amid the pandemic and has large room for development.

If Viet Nam can take advantage of the global economy’s recovery momentum and existing free trade agreements with other countries, the GDP target of 6.5 per cent is feasible.

*Vo Tri Thanh is a senior economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. The holder of a doctorate in economics from the Australian National University, Thanh mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems.

However, this money seems to be stuck within the financial system, or is being poured into stocks and real estate, rather than into production. Drastic measures are now necessary to bring this cash flow back into the production sector.

Speed of money flow

In 2019 and 2020, the State Bank of Vietnam had lowered the interest rate three times in order to implement the monetary expansion policy and stimulate the economy. Looking at economic recovery in a post Covid-19 pandemic scenario, the Government has been implementing a combination of expansionary fiscal and monetary policies to boost GDP growth. However, besides the concept of the money supply, it is also important to consider the speed of money flow, which is another way to measure the health of the economy.

According to Milton Friedman’s calculated theory M*V=P*Q, which guages money quantity, M is the quantity of money supply, V is the velocity of money, P measures price change of goods and services in an economy, Q is the volume of goods and services traded. The velocity of money is related to the frequency of monetary transactions in the economy. The high velocity of money is often a sign of a healthy economy, because money is exchanged for fast commodities, and the cash flows faster. Economists divide money into two categories. First, money primarily used by people and companies for transactions which is called “operating money”, and second, money used to save and accumulate which is called “idle money”. The more idle money there is in the economy, the slower the speed at which money is circulated.

Fig. 1 shows that the velocity of money in Vietnam has continuously dropped to a very low level over the last 20 years. There is concern if the current velocity of money is so low due to too much idle money in the economy. The decreasing velocity of money in Vietnam implies that the cash flow from hand to hand is very slow, reflecting a decline in transactions and consumption of businesses and households after 2011. Instead, most of the money can be used to pour into investment channels such as stocks, real estate or exist in the form of savings rather than production and consumption. This cash flow may be the source for the bubble caused recently in real estate and stocks.

Since the outbreak of the Covid-19 pandemic until the end of 2020, 95 documents have been issued to support businesses and people with four major policy packages, namely, VND 250,000 bn for credit support; VND 180,000 bn of tax-deferred support; VND 16,000 bn for 0% interest rate loans; VND 30,000 bn for fiscal packages and a series of other measures. This has been followed by the social security support package of VND 62,000 bn under Resolution 42/NQ-CP on measures to support people in difficulty due to the Covid-19 pandemic.

However, the velocity of money continued to decline during this phase, showing that the huge amount of money that seemed to have been trapped in the public financial system showed reluctance to be consumed by the people, and also slowed GDP growth which did not meet expectations. Disbursement conditions for manufacturing enterprises and services are quite strict, and the social security system can be considered as old, making effectiveness of support policies decrease significantly.

Solutions to stimulate growth

First, it is vital to increase the flow speed of money. To increase the flow speed of money and fasten the speed of spending on goods and services, there is need to increase the demand for goods and services, stimulate production, employment, increase income, and ultimately boost GDP. In society, low-income people are usually the group that spends money fastest on goods and services every time they have money at hand.

Therefore, the Government needs to strongly reform the social security policy, so that the money can be quickly delivered to the people, especially the disadvantaged and low-income groups. When money turns up, they will use more services, increase their purchasing power, stimulate production and more jobs are then created, wages also increase and in turn this creates a vortex to promote economic development.

Second, there is need to promote credit growth. The manufacturing sector is an important driver of economic growth. Therefore, the Government should have solutions to facilitate credit flow to businesses and households. Besides, tightening capital flow into real estate or investing in stocks to avoid deviation of investment cash flow causing asset bubbles, which are not conducive for socio-economic development. Banks can also lower their profit targets, and share them with producers and households with medium-term loan packages, with attractive and stable interest rates, helping them to stabilize production. When production is stable and employees have jobs, it becomes a fertile platform for banks to seek profits.

Third, it is essential to promote digital transformation via enterprises and state management agencies. It is wise to invest in digital transformation today to create future economic growth, save costs and improve operational efficiency. The digital transformation process will help businesses increase productivity, promote output growth in proportion to the increase in money supply, and will also help keep inflation at a stable level. Digital transformation can be the key to the production process, creating a turning point for the economy, helping the economy move away from stagnant forces, and gradually move closer to stable growth, without too much fiscal and monetary stimulus from the Government.

Family members and ambulance worker wearing PPE kit (Personal Protection Equipment) carry the bodies of the patients who died of the Covid-19 coronavirus at a cremation ground in New Delhi on April 27, 2021.(Prakash SINGH / AFP)

The UN health agency said the B.1.617 variant of Covid-19 first found in India had as of Tuesday been detected in over 1,200 sequences uploaded to the GISAID open-access database “from at least 17 countries”.

“Most sequences were uploaded from India, the United Kingdom, USA and Singapore,” the WHO said in its weekly epidemiological update on the pandemic.

The WHO recently listed B.1.617 — which counts several sub-lineages with slightly different mutations and characteristics — as a “variant of interest”.

But so far it has stopped short of declaring it a “variant of concern”.

That label would indicate that it is more dangerous that the original version of the virus by for instance being more transmissible, deadly or able to dodge vaccine protections.

India is facing surging new cases and deaths in the pandemic, and fears are rising that the variant could be contributing to the unfolding catastrophe.

The explosion in infections in India — 350,000 new cases were recorded there on Tuesday alone — has driven a surge in global cases to 147.7 million.

The virus has now killed more than 3.1 million people worldwide.

The WHO acknowledged that its preliminary modelling based on sequences submitted to GISAID indicates “that B.1.617 has a higher growth rate than other circulating variants in India, suggesting potential increased transmissibility”.

It stressed that other variants circulating at the same time were also showing increased transmissibility, and that the combination “may be playing a role in the current resurgence in this country.”

“Indeed, studies have highlighted that the spread of the second wave has been much faster than the first,” the WHO said.

It highlighted though that “other drivers” could be contributing to the surge, including lax adherence to public health measures as well as mass gatherings.

“Further investigation is needed to understand the relative contribution of these factors,” it said.

The UN agency also stressed that “further robust studies” into the characteristics of B.1.617 and other variants, including impacts on transmissibility, severity and the risk of reinfection, were “urgently needed”.

Andrew Jeffries, country director for Vietnam of the Asian Development Bank

“You are so lucky to be working in Vietnam,” my colleague from abroad told me. “Vietnamese people are fortunate to be able to lead normal lives, visit restaurants, travel domestically, and their children can attend school in person at a time when COVID-19 is still active and preventing many of these activities in many other countries.” Certainly, more than anyone, as a foreigner working in Vietnam since August last year, I understand this very well. The evidence is very clear that now as the COVID-19 pandemic is still complicated in many parts of the world, Vietnam remains resilient and successfully contained the new waves of outbreaks.

In 2020, although Vietnam only recorded 2.91 per cent growth, the country’s lowest growth rate in the past decade, this remained a remarkable achievement because it is one of the highest growth rates in the world amid the pandemic with enormous loss of life and severe economic damage. With effective policies and measures from the government, Vietnam should be proud of achieving its dual targets – both maintaining positive economic growth and controlling the pandemic to ensure people’s health.

The government’s support packages, especially fiscal support policies such as tax relaxation, are very timely and helpful. Under the government’s instructions, the State Bank of Vietnam (SBV) also provided credit support through debt restructuring, exemption or reduction of interest rates on existing loans, and preferential interest rates for new loans to priority sectors. However, it needs stronger coordination among ministries, sectors, and localities in enhancing information dissemination on supportive policies to facilitate enterprises with easier access to these support packages. Detailed and complete guidance is needed on the implementation and simplification of the process for businesses to follow, particularly for small- and medium-sized enterprises.

Maintaining momentum

Indeed, 2020 was a very difficult year, but also the year to recognise the efforts of the business community in overcoming the challenges caused by the pandemic. Businesses have been hit hard by the pandemic with adverse consequences such as imbalance of cash flow and disruptions in supply chains. Many enterprises had to reduce their number of employees, stop operations and withdraw from the market, or even go bankrupt.

However, in difficult circumstances, many businesses actively changed their strategies, took the chance to restructure, retrain staff, and focus more on the domestic market and diversifying their consumer markets, and ensuring the supply within the country. Many businesses have also taken the opportunity to step up technology transformation to improve productivity and catch up with the trend of digital transformation.

Thanks to effective policies from the government and strong efforts of the business community, Vietnam was able to maintain good growth momentum, taking opportunities from the shift of supply chains in the region, and to further strengthen the already strong foundation for macroeconomic stability and continue to be one of the fastest-growing economies in the region in 2021.

In the newly-released Asian Development Outlook 2021, the Asian Development Bank (ADB) raised its forecast for Vietnam’s economic growth to 6.7 per cent in 2021 and 7 per cent in 2022 — strong and steady growth made possible by Vietnam’s success in containing the pandemic. However, in my view, the growth quality is more important than specific numbers.

In the 2021 outlook, the ADB recommends Vietnam to continue maintaining prudent macroeconomic policies this year to ensure a sustainable and inclusive recovery process and accelerating economic reforms towards a more enabling and innovation-friendly environment, while enhancing risk management under ‘new normal’ conditions.

Reality has proven that the domestic economy cannot be separated from outside markets. With such a large, open economy, Vietnam will continue to face many challenges in the context of the unpredictable pandemic as well as possible increased trade protection and financial risks. Now is the right time for Vietnam to have a deeper look into production issues, and imports and exports, because exports are growing, while the contribution of domestic enterprises to the export value remains low, mainly from foreign-invested enterprises with about 70 per cent.

Vietnam will need to maximise the opportunities and benefits from the free trade agreements that the country participates in, so that the Vietnamese businesses can participate more deeply in global supply chains, including becoming direct suppliers for foreign investment-led manufacturing and increase the value addition as well as national competitiveness. Besides that, Vietnam needs to find ways to strengthen its domestic market and improve product quality so that Vietnamese consumers have a chance to enjoy the best products produced in the country.

Connecting communities

When it comes to enhancing competitiveness and efficiency to participate more deeply in the global value chain, there is an emphasis on the role and power of digital transformation. Digital transformation is not just a global trend but also a new economic growth driver. The Fourth Industrial Revolution is still in its early stages in Vietnam. Taking this opportunity to make a breakthrough, Vietnam can become a digital economy in the future.

At the upstream level, the Party and government of Vietnam determined that digital transformation is key to proactively catching up with Industry 4.0. We observed that agencies and units have been established to handle digital transformation in conjunction with recognising modern work arrangements and especially employer’s responsibilities to reskill employees. International experiences have shown that digital transformation can face many difficulties at the beginning but will bring high efficiency in the long run.

At the corporate level, digital transformation can start with creating forums connecting the business community and entrepreneurs with digital applications and solutions to increase competitiveness in providing quality products and services meeting the increasing demands of the domestic and international markets.

Experts also pointed out challenges hindering digital transformation in Vietnamese enterprises, including lack of information on new digital technology, shortage of qualified human resources to apply and utilise digital technology, lack of financial resources to invest in digital infrastructure in addition to affordability issues given the high cost of digital technology applications, and risks of data security and safety of digital transactions.

Vietnamese businesses have an advantage, when digital technologies such as cloud computing, the Internet of Things, AI, and more have been developed by domestic tech companies and deployed in corporate governance solutions. With this advantage, domestic businesses can cooperate with partners in digital technology to get the most effective solutions, while saving costs and time.

The pandemic has also created an opportunity to demonstrate the significant role of digital technology in state management, in production, business activities and for social welfare. Digital technology could be considered as a factor to help ensure a sustainable and inclusive recovery. COVID-19 created a push to promote digital transformation to meet the immediate needs of people to access basic social services as well as new forms of services without direct contact, such as online shopping or making payments via mobile banking or e-wallets.

We are so delighted to witness the ADB’s partnership with the SBV in enabling a fintech ecosystem in Vietnam as well as supporting the application of fintech solutions to promote financial inclusion. In cooperation with Vietnamese project counterparts, the ADB also introduced digital solutions in some sectors, such as introducing disaster early warning systems in disaster mitigation projects in the central region provinces. We continue discussions with relevant ministries, agencies, and localities on development of smart, digital solutions for urban areas.

With solid foundations, and the new government’s continued commitment to further strengthen institutional reforms, there is no doubt that Vietnam will overcome the pandemic and recover strongly in the coming years.

FPT officially announcing the strategic investment in Base.vn

FPT has not disclosed the specific figure, but said that the stake acquisition is sufficient to integrate Base.vn into its financial statement.

Pham Kim Hung, director of Base Enterprise, the developer of Base.vn , said Base.vn helps businesses solve three big problems: Management for higher productivity, transparent and efficient information system, and comprehensive business governance and human resources development strategy.

“We plan to develop to solve other big problems for businesses like financial administration, customer administration, and business development on a united platform,” Hung said. “The cooperation with FPT will enable Base.vn to save at least 10 years of development.”

Accounting for over 97 per cent of the country’s total number of businesses and contributing 45 per cent to the country’s GDP, small- and medium-sized enterprises (SMEs) are key drivers of the nation’s growth. According to Cisco research, digital transformation among SMEs in Vietnam can contribute $24-30 billion to the national GDP in 2024, and significantly contribute to economic recovery in the post-COVID-19 landscape.

Nguyen Van Khoa, general director of FPT, said, “Over the past years, FPT has been partnering with powerful firms in Vietnam and over the world in our digital transformation journey. Our strategy is to build a comprehensive platform for SMEs and the partnership with Base.vn , will enable FPT to realise this goal.”

Established in August 2016, Base.vn is one of the pioneers in the development of a Software-as-a-Service (Saas) business governance platform in Vietnam. Currently, Base.vn has more than 5,000 customers in different sectors, 50 of which are the top ones in Asia.

Meanwhile, founded in 1988, FPT has three core business lines: technology, telecommunications, and education. After 30 years of development, FPT is now present in 26 countries worldwide.