Việt Nam’s robust exports to underpin rapid growth rebound in 2022

Workers of Samsung Electronics Việt Nam produce mobile phones for export. Fitch Rating expects Việt Nam to have a strong export performance in 2022-23. — VNA/VNS Photo

Việt Nam’s recovery is set to gather momentum this year, as domestic demand rebounds and export performance remains strong, according to Fitch Ratings.

In a report released this week, the rating agency said improving levels of vaccination in Việt Nam should reduce the risk that the country’s recovery is set back by further COVID-19 outbreaks. However, the evolution of the pandemic remains subject to uncertainties, in particular as daily cases have trended higher in recent months.

Việt Nam’s economic growth in 2021, at 2.6 per cent, was much weaker than the 7 per cent that Fitch had expected in April 2021 as the authorities moved to control a surge in COVID-19 cases.

However, Fitch forecasts further pandemic-related shocks, while possible, are unlikely to be so severe, because the Vietnamese Government has shifted from a “zero COVID” approach to the flexible adaptation strategy as vaccination rates have increased.

“We expect growth to accelerate to 7.9 per cent in 2022 and 6.5 per cent in 2023 as the recovery becomes established,” Fitch said in the report, adding growth will be led by exports, which rose by 19 per cent in 2021 in US dollar terms.

“We expect goods demand growth to decelerate in the developed world in 2022 as activity normalises and services demand picks up. However, Việt Nam’s export sector should remain a regional outperformer, benefitting from its cost competitiveness, persion of trade from China and a variety of key trade agreements.”

The temporary supply disruptions in the third quarter of 2021 do not appear to have weakened Việt Nam’s attractiveness for export-related foreign investment. Inward investment remained strong in 2021, at US$19.7 billion, down only slightly from $20 billion in 2020.

According to Fitch, the strong export performance that the rating agency expects in 2022-23 will catalyse domestic investment and consumption, through positive spill-overs, for example from job creation.

Fitch noted although Việt Nam’s economy continued to grow in 2021, the gap between its GDP per capita and the median of the ‘BB’ peer group widened.

“Our baseline forecast of a return to rapid growth rates, coupled with an appreciation of the Vietnamese currency, should mean the gap with rating peers begins to narrow again in 2022-23. In April, we said that sustained high growth that reduces the GDP per capita gap vis-à-vis peers, while maintaining macro-economic stability, could lead to a rating upgrade,” Fitch said.

Under the report, Fitch forecasts Việt Nam’s public debt/GDP ratio broadly stable over 2022-23, at around 41 per cent of GDP.

As non-performing loans in Việt Nam’s banking sector rose in 2021 amid disruption to economic activity associated with efforts to control COVID-19 outbreaks, Fitch said a return to strong economic growth should reduce risks to asset quality, but the rating agency believes the pace of bank capital accrual will remain modest in 2022-23, as much of the internal capital generated is likely to be consumed by rapid balance-sheet growth.