Soaring industrial production spurs on economic growth

The World Bank stated in its April bulletin that the Vietnamese government has continued to manage the COVID-19 health crisis well. As of May 5, the total number of confirmed COVID-19 cases has reached 2,996 cases with only 35 deaths. At the same time, Vietnam had received over 900,000 COVID-19 vaccine doses. The country expects to obtain 60 million doses of COVID-19 vaccines through the COVAX Facility and AstraZeneca in 2021.

"Vietnam is recovering from its COVID-19 shock, but this recovery has been uneven
across various sectors. GDP growth reached 4.5% year-on-year in the first quarter of 2021, comparable to the performance achieved in the last quarter of 2020. While this growth rate remained lower than pre-pandemic levels, it reflected the on-going recovery of the economy despite the third outbreak of community transmitted infections in February in northern Vietnam," the bulletin said.

Surging production and trade

According to the General Statistics Office (GSO), in April, Vietnam's index for industrial production (IIP) increased 24.1% year-on-year "thanks to the effective control of COVID-19 and of free trade agreements helping stimulate local production," in which the manufacturing and processing sectors created 80% of industrial growth, ascending 29.1% year-on-year.

The most dynamic sub-sectors include beverages as businesses are ramping up production to serve domestic demand in the summer. The manufacturing of metals, electronic components, electrical equipment, machinery, and motor vehicles also grew thanks to strong external demand. The Purchasing Managers' Index (PMI) index rose from 51.3 in February to 51.6 in March, confirming the continued expansion of manufacturing.

In the first four months of 2021, the IIP climbed 10% year-on-year, in which the manufacturing and processing sector expanded 12.7% year-on-year - higher than the 9.7% year-on-year rise during the same period last year.

"After last year's slowdown, industrial production is projected to gain momentum on the back of returning demand from key international partners. Despite the ongoing COVID-19 pandemic, the underlying strength of Vietnam's industrial sector remains intact: Vietnam is an attractive low-cost base for manufacturing firms, including those looking to relocate from China due to US-China trade tensions," said Spain-based FocusEconomics, which provides in-depth economic analysis globally, in its May report sent to Nhandan Online. "That said, a sluggish rollout of the vaccine, coupled with an uncertain development of the pandemic, pose a risk to the positive outlook."

Spain-based FocusEconomics, which provides in-depth economic analysis globally, estimates that Vietnam's industrial output will grow 9.2% in 2021, down 0.2 percentage points from last month's forecast. For 2022, FocusEconomics Consensus Forecast panelists expect industrial production to expand by 8.4%.

Also according to the GSO, one of the clearest pieces of evidence for Vietnam's surging industrial production is the soar in exports and imports in the first four months of 2021.

Figures showed that in the first four months, the economy's total export-import turnover is estimated to hit US$206.51 billion, including US$103.9 billion from exports - up 28.3% year-on-year, and US$102.61 billion from imports - up 30.8% year-on-year.

Notably, in terms of imports, turnover of production materials is estimated to be US$96.31 billion, up 31.4% year-on-year, accounting for 93.9% of the economy's total import turnover. The import turnover of consumer goods is estimated to be US$6.3 billion, up 22.5% year-on-year and making up 6.1% of the country's total import turnover.

In terms of products, the most important contributors to the build-up of merchandise trade were computers, electronics, and machinery, which accounted for about one-third of total trade value. Their export and import grew last month by 45% and 26%, respectively, exemplifying the heavy reliance of Vietnam's exports on foreign inputs.

Exports of textiles, garments, and footwear also rebounded, growing by 15.5% year-on-year and 19.2% year-on-year respectively, while those of mobile phones fell by 19.1% year-on-year.

The strong export growth was mainly driven by more resilient foreign-owned exporters. Their exports increased by 32.1% on-year, compared to a fall of 10.8% year-on-year in local firms' exports. In terms of trading partners, the booming exports reflected strong demand from the US and China, as well as a rebound in demand from the EU market.

The higher level of imports is related to the growing procurements of goods from China, ASEAN, and the Republic of Korea.

Expecting higher economic growth

FocusEconomics wrote in its May report, sent to Nhandan Online, that looking ahead, economic recovery should gather pace later in 2021, with the second quarter's results projected to be significantly higher than in the first quarter of the year. However, the still-high infection rates in Europe and the US and the associated limitations on international travel cloud the positive outlook somewhat.

Regarding the outlook, Dhiraj Nim and Khoon Goh, economists at ANZ, commented, "Vietnam's first-quarter GDP print may have partly dampened the optimism regarding
its economic recovery in 2021. However, we believe that the economy's upward growth trajectory remains intact, and even at our revised 7% growth forecast, the recovery will be robust. In fact, the economic climate had started to improve by the end of the first quarter, and the second quarter is likely off to a solid start. However, further Covid-19 outbreaks and the slow vaccination rollout remain the key downside risks in our view. Inflation, on the other hand, is certain to accelerate meaningfully, and will attract greater policy focus this year and the next."

FocusEconomics Consensus Forecast panelists expect Vietnam's GDP to expand 7.1% in 2021, and 6.8% in 2022.

Meanwhile, according to the International Monetary Fund (IMF), a robust recovery is expected in 2021 despite some economic scarring.

"Growth is projected to strengthen to 6.5% as normalisation of economic activity continues, businesses recover, and private consumption and business investment rebound," said a fresh IMF report on Vietnam's economy. "Manufacturing and retail sales are expected to lead the recovery, while travel and hospitality services will remain subdued. Net exports will continue to contribute positively to growth as external demand picks up."

The IMF suggested that priority should be given to improving the business environment and ensuring a level playing field. Reforms geared towards simplifying and reducing the regulatory burdens faced by domestic private firms, improving access to land and financial resources, particularly for small- and medium-sized enterprises, and reducing corruption could spur firm profitability, investment, and growth.

In addition, easing entry and exit costs for formal firms would allow for higher formalisation of new and young firms, reduce informality, and allow for a faster
reallocation of resources from exiting companies, increasing productivity. Moreover, continued reform of state-owned enterprises, including improving governance, would help increase competition and facilitate more efficient allocation of resources.

According to the GSO, in the first four months of 2021, the economy saw nearly 44,200 newly-established enterprises with a total registered capital of VND627.7 trillion (US$27.3 billion), employing 340,300 labourers - up 17.5% in the number of enterprises, 41% in capital, and 7.8% in the number of labourers as compared to those in the same period of last year.

In particular, the average registered capital of each newly-established business in the first four months of the year was VND14.3 billion (US$617,400), up 20% on-year. If an additional VND792.9 trillion (US$34.47 billion) registered by 14,900 operational enterprises is included, the total registered capital inserted into the economy in the period is VND1.42 quadrillion (US$61.74 billion).

Furthermore, the first four months also saw 19,300 enterprises resume operations, up 8% year-on-year.