Vietnam’s economic growth in 2022 is expected to be at 7.9%. That growth momentum will be driven by the export sector that will benefit from many favorable factors, such as the government’s support, and signed FTAs over recent years.
Vietnam to regain growth momentum, boosted by exports
In April 2021, Fitch Ratings' outlook for Vietnam was at the “BB” level, with a “positive” outlook. Vietnam’s economic growth in 2021 was anticipated to be at 7%. The actual result of 2.6% was much weaker than expected. COVID-19 outbreak led to pandemic shocks that lowered economic growth. GDP in the third quarter of 2021 reduced by 6% compared to the same period in 2020.
Fitch Ratings forecast that Vietnam’s economic growth would reach 7.9% in 2022 and 6.5% in 2023 when recovery is established. This expected growth will be led by the export sector, which increased by 19% in 2021 in USD terms.
The credit rating firm forecasts that growth in demand for goods will decelerate in developed countries in 2022 as operations normalize and demands for services increase. However, Vietnam's export sector still outperforms the region, benefiting from cost competitiveness, trade diversion from China, and a series of key trade agreements.
The temporary supply disruption in the third quarter of 2021 is unlikely to weaken Vietnam's attractiveness for export-related foreign investment. Foreign investment remains strong in 2021, at 19.7 billion USD, down slightly from 20 billion USD in 2020.
What factors will help Vietnam’s exports?
Many factors will push the growth of Vietnam’s export sector in 2022:
- The Government shifted from a “zero Covid” policy to a more flexible adaption to the pandemic. That proved to be an effective change as the commercial activities in the last two months of 2021 strongly recovered, helping export exceed the set goal.
- Trade agreements will continue to be the driving force behind Vietnam's import and export growth in 2022 when commitments to cut tariffs are implemented more deeply. With 15 FTAs signed, the latest is the Regional Comprehensive Economic Partnership (RCEP) which came into effect from January 1, 2022, will continue to support Vietnam's commercial activities with many large markets.
- Trade tension between the US and China has persisted for years, and there has been no breakthrough improvement after the US-China summit on November 15, 2021. Therefore, export orders and investment capital flows are likely to continue to shift from China to Vietnam in the near future. Since the trade tension between the world's two largest economies broke out in 2018, Vietnam's exports to the US have continuously increased. By 2021, export turnover to this market has reached 96.29 billion USD, up 24.93% compared to 2020. Currently, Vietnam is one of the largest trading partners of the US.
- In 2022, oil prices and other commodity prices are expected to remain high thanks to the recovery of world demand, which will positively impact the export turnover growth of Vietnam. That is considered an important driver for increasing export value in 2022.
- In the last months of 2021, consecutive large FDI projects are licensed to invest in Vietnam. These will be new drivers for Vietnam's export growth in 2022 and the following years.
There will also be factors hindering Vietnam’s exports:
- The growth momentum will depend largely on how the pandemic will be controlled. New difficulties of key economies have greatly affected the growth momentum of the global economy by the end of 2021.
- The input costs of raw materials, auxiliary materials, packaging have increased. In addition, the high cost of sea logistics is currently the biggest challenge for most manufacturing and exporting enterprises.
- Companies will face more trade defense lawsuits that are likely to increase in many countries since the market tends to increase the protection of goods and supply chains.
- The main export markets of Vietnam are also tightening control and inspection measures for imported agricultural products.
Outlook for Vietnam’s key export product groups
Agriculture, Forestry, and Fishery
In 2022, Vietnam's agricultural and fishery exports are forecast to continue to maintain the growth momentum of 2021. Exports of agricultural and aquatic products in 2022 will continue to be supported by favorable changes in the export prices of many commodities.
However, the trend of increasing non-tariff barriers in many trading partners, fierce competition in the world market, high transportation costs, and congestion at seaports worldwide will continue to be obstacles for agricultural, forestry, and fishery exports in 2022.
Processed industrial products
The industrial and processed products export will continue to be the driving force for Vietnam's export growth. With FDI capital invested in Vietnam's industries in recent years, the export turnover of this group of goods still has a lot of room for growth in the coming years.
Source: Fitch Ratings, The Ministry of Industry and Trade
Compiled by VietnamCredit