2021 – A start milestone for the new growth cycle: Assoc. Prof. Dr. Nguyen Khac Quoc Bao
14 Jan, 2021
The outbreak of Covid-19 pandemic has dragged the year 2020 to the bottom of an economic cycle with a decade low GDP growth of 2.91%.
However, the dual goals of fighting against the pandemic and socio-economic recovery and development achieved are attributed to the success in controlling the pandemic and comprehensive economic stimulus packages by the significant role of Government management. GDP growth in the 4th quarter increased by 4.48%, higher than 2.69% of the 3rd quarter, which made the trend of economic recovery more solid and hence revealed a prospect that 2021 would initiate a new growth cycle with these features as follows.
Tenure effects of the first year
The political event, XIII Party Congress, scheduled to be held in early 2021, plays an important and decisive role over the subsequent 5 years. The undertakings, guidelines and policies proposed by the Congress will become the critical orientation for the country's development in all aspects, especially in the economy.
The successful growth model based on the intensity of labor and natural resources contributed to the country's development for more than 35 years of innovation and integration, is now no longer suitable for internal conditions as well as international circumstances in the new era.
Accordingly, science, technology, and innovation instead are considered as the main pillars in the new growth model of Vietnam’s economy. This will usher in the next stage of development fueled by these first-seen economic incentives.
The new model and policies need to be driven by innovative and creative thinking. After the Congress, the authorities from the central to local level will be organized by new leaders. Certainly, in the first year of their tenure, they will make their best efforts to prove their capabilities of managing and leading the country with far-reaching measures to implement the directions and guidelines set by the Congress. As a result, 2021 may become the tipping point of the next growth cycle.
People shop at a supermarket in Ho Chi Minh city. Photo: Nhu Quynh
The effectiveness of “tonics” for the economy
Social distancing and suspension of economic activities to combat the Covid-19 pandemic in 2020 seriously weakened the health of the economy. Therefore, the Government launched a lot of economic stimulus, pain-relief and support packages, viewed as the tonics for the economy.
These direct or indirect relief packages for workers and business sector stimulated demand for domestic consumption on a large scale and boosted public investment and exports. Monetary and fiscal policies were also contractionary to an extreme extent. The public investment package worth more than VND 700,000 billion were disbursed over 70% and relevant projects are being urged day and night to ensure progress.
However, the ailing state of the economy at that time could not absorb all of these support and stimulus packages. Most of the above capital sources were mainly captured in the transmission channels, creating the effect of cheap capital flow. Therefore, these strong motivations accompanied with the factors of relaxing policy and mechanism mentioned above shall promote the economy to move and start to accelerate in 2021.
Risk appetite increased
Throughout 2020, the uncertain consequences of the pandemic and coping solutions such as social and economic distancing terrified many people. No economic stimulus policy can resist such panic unless it is believed that the pandemic has been actually controlled and repelled. If the vaccination is tested successfully on humans, mass vaccination in 2021 will assure community safety.
At that time, many people will inevitably rush into work with more determination and effort to make up for the shortages and losses of the old year, making economic activities more active for the coming time. Business projects, plans or investment decisions which previously postponed due to Covid-19 or lost their viability due to financial and credit constraints will totally have the opportunity to restart with greater effort and determination.
Importantly, the psychological effects and behavioral factors will then make people more willing to take higher risks because their fear has been eliminated and the confidence in the macro environment has significantly improved with aforementioned optimistic signals.
High determination, daring to take more risks, and psychological effort to adapt to the "new normal state" harmonized with and driven by open economic policies, loose financial and credit conditions, easier capital and production-business input conditions will create a sustainable recovery and steady growth. If this process is well maintained, it will promote an important movement for the economy in the new phase.
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A corner of Hanoi Highway towards the center of Ho Chi Minh City. Photo: Quynh Tran.
A new generation of businesses
The emergent consequences of Covid-19 through the entire world’s and Vietnam’s economy are activated as the drastic elimination coming to businesses. Despite the toughness of evolutionary principles, it brought growth. While unsurvivable businesses and organizations were dissolved or went bankrupt, there were thousands of newly established enterprises as well as so many other survivors who succeeded in transforming their operations and business models.
As a typical example, a company renowned for its nationwide distribution system of mobile phones and electronic products has shortly introduced the "shop and to-door delivery" service to adapt to the social distancing which paralyzed traditional retail stores.
Or many farmers who used to be unfamiliar with the internet had to strive to promote and trade their agricultural products through social media during the anti-pandemic isolation. And lumber companies have turned to produce finished products with higher quality and design to conquer other fastidious markets or for domestic consumption instead of exporting raw materials to the Chinese market... These examples showed that Covid-19 has been creating a better development of new businesses.
According to a survey conducted by the World Bank and the General Statistics Office of Vietnam, as of this September, more than 60% of surveyed companies successfully implemented digital transformation to adapt to the business instability caused by Covid-19. The new decade has created pressure but also offered opportunities for new business models and young enterprises.
Innovative business ideas and models motivated by breakthrough policies and mechanisms, supported by preferential investment capital, absorbed by the recovery of aggregate demand will spur a new business generation who will definitely create a new growth cycle.
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