Effective measures taken by the government managed to largely insulate the economy from the COVID-19 pandemic in 2020, when GDP grew by 2.9%—one of last year’s highest growth rates in the world. Even so, it was Viet Nam’s lowest growth in a decade.

Vietnam Faces Key Challenges in Softening Impact of Covid-19 on Poverty and Incomes
Photo: Nikkei
The economy grew in 2020 despite the COVID-19 pandemic and the ensuing downturn in global growth. Expectations that COVID-19 will be effectively controlled and gains in industry, trade, and investment will push growth markedly higher in 2021 and 2022. 
Inflation should edge up slightly and the current account surplus narrow. The economy, however, will only be able to return to its strong prepandemic growth path if COVID-19 is brought under control. A key policy challenge is to soften the pandemic’s impact on poverty and incomes.
Effective measures taken by the government managed to largely insulate the economy from the COVID-19 pandemic in 2020, when GDP grew by 2.9%—one of last year’s highest growth rates in the world. Even so, it was Viet Nam’s lowest growth in a decade. 
Agriculture grew by 2.7% in 2020 from 2.0% in 2019, with the sector buoyed by proactive export promotion; structural transformation (for example, shifting from rice to high-value cash crops and livestock); and a dynamic private sector. 
Agriculture contributed 0.4 percentage points to GDP growth last year—a strong performance given severe floods and drought, increased salinity intrusion, and a sharp drop in external demand.
Industry and construction growth moderated to 4.0% in 2020, contributing 1.4 percentage points to growth, as effective COVID-19 controls helped maintain a stable supply of labor. 
Weak external demand cut manufacturing growth by almost half to 5.8%. The sharp drop in global demand for oil and related commodities caused the expansion in Viet Nam’s mining industry to slow. Construction growth slowed to 6.8% in 2020 from 9.1% in 2019. 
Services growth fell 2.3% despite a strong recovery in the fourth quarter of last year in spending on health and financial services, retail sales, and e-commerce. 
The services sector took a big hit from a 78.7% plunge in international tourist arrivals. In all, the contribution of services to GDP growth fell to 0.9 percentage points in 2020 from 2.8% in 2019.
On the demand side, consumption fell sharply on firm insolvencies and impaired incomes due to the COVID-19 pandemic. Consumption growth of only 1.1% in 2020 reduced consumption’s contribution to GDP growth to 0.8 percentage points. Private consumption growth fell to 0.6%, but public consumption rose by 6.2%. 
The expansion of total gross capital formation halved to 4.1% last year, contributing 1.4 points to growth. A slowdown in private investment was compensated by
a 34.5% increase in public investment, among the highest levels of public investment support in Southeast Asia. 
External trade performed robustly despite headwinds from COVID-19. Net exports of goods and services contributed 0.3 points to growth, with export growth of 4.4% exceeding import growth of 3.9%.
Inflation averaged 3.2% in 2020 and was only slightly higher than 2019’s 2.8%, despite an unexpected increase in pork prices in the first quarter of 2020 and severe floods in the third quarter.
Subdued domestic demand and a steep fall in global fuel prices largely tamed inflation.
The State Bank of Viet Nam, the central bank, cut refinancing rates three times last year from 6.0% to a record low of 4.0%; the discount rate fell from 4.0% to 2.5%. The central bank reduced interest rate caps on dong deposits of less than 6 months and on the short-term lending rate to priority sectors. 
It also provided credit support through debt restructuring, waiving or reducing interest rates for existing loans and preferential rates for new loans to priority sectors. But a stagnant business climate and firm insolvencies weakened credit demand. By the end of 2020, outstanding bank credit growth was estimated at 11.0% from 2019, its lowest level in 7 years. 
Money supply increased by an estimated 12.6% in 2020, up from 12.1% in 2019. The current account surplus stood at an estimated 4.6% of GDP last year, little changed from 2019, supported by a sizable trade surplus, despite a decline in net services and incomes.
Exports expanded by 7.0%, boosted by multilateral and bilateral trade agreements, the country’s diversification into global value chains, and trade diversion. Exports to the United States, mainly mobile phones, spare parts, and textiles, increased by 25.0%. 
The People’s Republic of China (PRC) surpassed the European Union to become Viet Nam’s second largest export market after the US.
Imports increased by 3.6%, with the PRC remaining the largest source of imports, followed by the Republic of Korea and the economies of Southeast Asia.
The financial account surplus more than halved to 3.1% of GDP last year largely on the decline in net inflows of mediumand long-term loans and portfolio capital. Because of this, the overall balance-of-payments surplus fell sharply to the equivalent of 6.1% of GDP. 
Foreign exchange reserves rose to an estimated 4.2 months of imports at the end of 2020. The fiscal deficit in 2020 widened to an estimated 5.8% of GDP. Budget revenue fell by 9.2% due to the shortfall in international trade, lower value-added tax receipts, and the losses from the drop in global crude oil prices. 
Total budget expenditure rose by only 1.2%, as the bulk of government spending on social security programs and infrastructure development, estimated at from previous years, contingencies, and off-budget funds. 
Public debt is estimated to have inched up to 55.4% of GDP in 2020 from 55.0% in 2019. Viet Nam’s stock market plunged in the first quarter of 2020, but quickly recovered as COVID-19 was brought under control and the central bank implemented its rate cuts, attracting domestic investors back to the market. The VN Index hit 1,200 in the first quarter of 2021.