16.07.2021, 14:23

Dragon Capital lowers Vietnam’s GDP growth forecast due to raging Delta variant

Dragon Capital lowers Vietnam’s GDP growth forecast due to raging Delta variant

A general view of the Cat Lai Port in HCMC. Vietnam’s GDP growth in 2021 may not be as expected because of the Delta strain of Covid-19 - PHOTO: VNA

HCMC - Due to the complexity of the Delta variant of the coronavirus, financial institution Dragon Capital has lowered its gross domestic product (GDP) growth forecast for Vietnam from 6% to 5% this year.

Although the fourth Covid-19 wave was spreading rapidly, the country's GDP growth in the first six months of 2021 still reached 5.6%, significantly higher than 1.8% seen during the same period in 2020.

The economy continued to maintain its recovery momentum thanks to the growth of production activities, accounting for 38% of the total GDP, up 8.4%, leading to a strong growth in trade activities.

However, domestic economic activities have showed signs of slowing down since the beginning of the second half of the year when the country began to implement social distancing in many cities and provinces, reflected in a 40% drop in travel in June compared to the same period last year.

The service and retail sectors were also hit hard as total passengers and retail sales fell 13% and 2%, respectively, last month.

As for manufacturing, in June, the Purchasing Managers' Index decreased to 44 from 53 in May, as some industrial zones halted production.

Therefore, Dragon Capital forecast that Vietnam’s economic growth may miss expectations this year.

Credit growth from the beginning of the year to mid-June reached 5.5%, while the six-month average inflation only increased by 1.5% over the same period last year, which is a slight increase amid the rising global inflation.

This allows the country to continue maintaining its loose monetary policy and aim at a credit growth of 12-14% to support the economy overcome the tough time.

Besides, credit growth since the beginning of the year is higher than deposit growth, at 3.1%, putting pressure on banks to mobilize capital in the future.

However, Dragon Capital expected the State Bank of Vietnam to inject about VND115-140 trillion into the system in the third quarter through the acquisition of U.S. dollars. This move will help improve the liquidity of the banking system.

The Government has approved a financial support package worth VND26 trillion, as well as moved to approve a tax exemption and reduction program worth nearly VND115 trillion.

Moreover, with nearly 10% fiscal space compared to 65% public debt ceiling, Dragon Capital expected the next economic support packages to be announced soon and the Government to make efforts to accelerate investment disbursement mainly for infrastructure development projects in the second half of this year.

Regarding the stock market, Dragon Capital said that the market’s upward trend is still being led by new individual investors.

However, while margin loans were still at a record high and securities companies continued to raise capital, new money deposited into accounts started to show signs of declining.

Meanwhile, foreign investors started to reduce their net selling, from nearly VND12 trillion in May to VND3.9 trillion in June.

Since July, foreign investors started to buy strongly, over VND4.3 trillion by the end of July 9. This is a very positive signal regarding the trading trend of institutional investors, the institution said.

Dragon Capital forecast that if global markets continue to rise and there are no negative factors, the country's stock market will keep its rallies in 2022 thanks to the strong recovery of fundamentals after the pandemic.