Research Center

Modest economic growth in 1Q21 put pressure on the target economic growth for full-year 2021. However, there are still some factors bolstering the economy in the next quarter, including COVID-19-devastated low base output in the same period last year, ongoing economic recovery, and promising fiscal spending from the newly-formed government. Also, accelerating vaccination and fiscal reliefs on a global scale add more favors for export activity and export-driven manufacturing in the next quarter.

After experiencing high volatility last month, the money and government-bond markets backed to normalization in March with improved banking liquidity. Interbank rates again stayed at low levels, while long-term yields saw loosening upward pressure. We expect that this trend would be ongoing in April, and interbank rates and G-bond yields would likely move in a tight range.

GSO’s figures show that Vietnam’s real gross domestic product (GDP) sustained its modest growth rate at 4.48%, leaning back on the impressive improvement in taxes-less-subsidies (TLS) and industry and construction (I&C) items. We believe that the Decree 41 tax deferral policy drove the TLS’s to grow notably this period.

Ongoing developments in the interbank and G-bond markets showed more tightening liquidity conditions than previously, which resulted in upward pressure on interbank rates and G-bond yields. From our perspective, rising inflation, global G-bond yield hikes, and improving lending activity are potential drivers for interbank rates and G-bond yields to increase further in March.

February showed a gloomy picture for the economic activity due to a long holiday. Export and production posted the first reduction since the pandemic, while CPI recorded the strongest increase in 8 years. For the outlook in March, we expect the well-controlled pandemic situation domestically and accelerating COVID-19 vaccines distribution globally will push economic growth back to expansionary.

Due to the lending activity accelerating in 2020-end and high demand for cash just before the New Year’s period, short-term fixed-income rates were facing great upward pressure by late-January. Interbank rates and short-term G-bond yields were breaking a multi-month downward trend in the month. From our perspective, the interbank and G-bond markets will continue to face liquidity shortage temporarily, which in turn push those corresponding rates to higher levels in February.

Vietnam's economic conditions in the first month of 2021 remain favorable as trade activities and retail sales continued high growth. Looking ahead to February, the domestic economic activity may be weakening due to the new outbreak, and the negative impact will be largely dependent on how the government controls the pandemic.