Vietnam’s Economic Backdrop 2Q21
Market recovery faces the fourth COVID-19 wave headwind
Vietnam continues to record a positive GDP growth in 2Q21: Vietnam’s GDP expanded 6.61% y-o-y in 2Q21, and this made the 1H21 GDP’s growth rate at 5.64% y-o-y, higher than the last year growth rate of 1.82%, yet lower than the rate of 7.05% in 2019 and 6.77% in 2018. While the manufacturing sector accelerated at 8.36% y-o-y, the services sector and agriculture, forestry and fishery industries grew at 3.3% and 3.2% y-o-y, respectively.
The growth rate of 5.64% in 1H21 is lower than the target of 7.11%, stated in Resolution No. 01/NQ-CP, owing to Covid-19 outbreak in some localities. The country is facing many challenges and hence posed several restrictions to pursue the dual goal: "disease prevention and economic development".
Although the growth prospect remains upbeat, according to the Ministry of Planning and Investment, to achieve the set target, the first half of the year must be above 7%. It is deemed challenging given the spread of the Covid-19 Delta variant and limited vaccine supply.
Looking for more insights? Never miss an update.
The latest news, insights and opportunities from global commercial real estate markets straight to your inbox.
Although social distancing was imposed to fight the pandemic, total retail sales and goods continued to recover. In contrast, tourism continued to trend down as the number of foreign visitors coming to Vietnam plummeted: The total retail sales of consumer goods and services reached VND 2,463.8 trillion, up 4.9% y-o-y in 1H21. Simultaneously, passenger transportation continued to face difficulties, with 1,813.5 million passengers, down by 0.7% y-o-y, while international tourists to Vietnam were estimated at 88,200 arrivals, down 97.6% y-o-y.
Foreign Direct Investment (FDI) capital decreased slightly compared to the same period in 2020: FDI capital reached USD 15.3 billion in the first six months of 2021, equivalent to 97.4% compared to the same period in 2020. Despite a decrease in total, FDI disbursement in 1H21 reached USD 9.24 billion, up 6.8% over the same period last year.
Among 18 industries attracting FDI funds in 1H21, the processing and manufacturing industry topped with USD 6.98 billion, accounting for 45.7% of the total registered capital. It is followed by the utilities industry, with an investment of USD 5.34 billion, constituting 35% of the total registered capital. Real estate business and science and technology activities are also among the most attractive industries for FDI investment. Regarding FDI partners, Singapore has been the largest investor in 1H21, with a total of USD 5.6 billion, accounting for 36.9% of the total registered FDI capital. It is followed by Japanese and Korean investors.
The average Consumer Price Index (CPI) in 2Q21 increased by 2.67% y-o-y, and the average CPI in 1H21 increased by 1.47% compared to the same period in 2020.
CPI increased mainly due to three reasons: (i) the domestic gasoline price increased by 17.01%, boosting the overall CPI by 0.61 percentage points, (ii) education increased by 4.47% due to the implementation of Decree 86/2015/ND-CP dated October 2, 2015, on increasing tuition fees for the 2020-2021 school year; and (iii) the price of construction materials in 1H21 increased by 5.03% y-o-y due to the increase in the price of cement, iron, steel and sand in line with the price of input material, contributing to the CPI increase by 0.1 percentage point.
On the other hand, there are a number of reasons softening the CPI growth in 1H21, including: domestic travelling was restricted due to the impacts of the pandemic; and the price of food items in 1H21 decreased by 0.39% y-o-y.
Trade balance changed from trade surplus in 1Q21 to trade deficit in 2Q21: Despite the fourth wave of Covid-19, import and export turnover was estimated at USD 316.73 billion, up 32.2% y-o-y. The export value reached USD 157.63 billion, up 28.4% y-o-y, while the import value reached USD 159.1 billion, growing 36.1% y-o-y.
The first half of 2021 is estimated to have a trade deficit of USD 1.47 billion. Regarding the export market, the US is the largest export partner with a turnover of USD 44.9 billion, up 42.6% y-o-y, followed by China, EU, ASEAN, Korea, and Japan. Regarding import partners, China is Vietnam's largest import market with a turnover of USD 53.4 billion, up 53% y-o-y, followed by the Korean market with USD 25.2 billion, up 21.1% and the ASEAN market with USD 20.9 billion, up 47.7%.
Newly registered enterprises in 1H21 increased in both quantity and registered capital: 67,100 newly registered enterprises with a total registered capital of VND 942.6 trillion and a total of 484,300 employees were newly registered, an increase of 8.1% y-o-y in terms of the number of enterprises. The registered capital also increased by 34.3%, while the number of employees decreased by 4.5% y-o-y. The average registered capital of a newly established enterprise in 6 months reached VND 14.1 billion, up 24.2% y-o-y. However, the number of enterprises suspending operations also increased by 24.9% y-o-y.
In the latest survey, 31.8% of manufacturing enterprises indicated that business performance was negatively hit in 2Q21. At the same time, only 39.2% were confident that the trend would be better in the latter part of the year, which is much lower than 85.1% recorded in the previous quarter.