It attributes the positive growth to the government’s success in containing the pandemic.
“Lower domestic consumption and weak global demand caused by Covid-19 have hurt Vietnam’s economy more than expected. But economic growth will be resilient in 2020, in large part due to the government’s success in controlling the spread of Covid-19,” ADB Country Director for Vietnam Andrew Jeffries said Tuesday.
He added that economic growth will be supported by macroeconomic stability, increased public spending, and ongoing reforms to improve the business environment.
The Asian Development Outlook (ADO) 2020 Update said that Vietnam will benefit from the continued diversion of production from China and the implementation of a free trade agreement with the E.U., which came into effect on August 1.
Slower-than-normal growth would keep inflation subdued at 3.3 percent this year and 3.5 percent in 2021.
However, risks remain, including the ongoing pandemic and trade tensions which could lead to rising trade protection, the report said.
The latest outlook marked ADB’s revision from an earlier forecast of 4.1 percent in June due to a rise in new Covid-19 infections in the country since late July.
Domestic consumption is expected to remain weak due to lower household and corporate incomes, rising unemployment, and more firms suspending operations, the report said.
Credit growth will also likely be weak as banks are reluctant to lower their lending norms over fear of an increase in nonperforming loans, it said.
The economy is expected to rebound to a growth of 6.3 percent next year, it added.
Vietnam recorded a decade-low GDP growth of 1.8 percent in the first six months. Last year’s growth of 7.02 percent was second highest in a decade.
The government had earlier announced a growth target of 2-2.5 percent for this year.
ADB also forecasts that economies across developing Asia, which groups 45 Asia-Pacific countries, will see a GDP decline of 0.7 percent this year, the first contraction since the early 1960s.