Singapore (VNA) - Vietnam’s GDP growth is expected to rebound to 7percent in 2021, driven by a recovery in external demand, a resilient domesticeconomy, and increased production capacity, according to the preliminaryassessment by the ASEAN+3 Macroeconomic Research Office (AMRO).

The office said that after a sharp drop in the secondquarter, Vietnam’s economic growth started to rebound in the third quarter of2020, with a broad-based recovery.

Manufacturing activity was boosted by a robust exportsector, which benefited from Vietnam’s relatively resilient export mix, as wellas trade diversion from the US-China trade tension. Meanwhile, domesticconsumption recovered following the relaxation of mobility restrictions, aresult of the authorities’ effective COVID-19 containment efforts. Furthermore,the rebound benefited from an acceleration in the disbursement of publicinvestment.

AMRO stressed that a protracted and uneven recovery of theglobal economy may jeopardise the recovery in external demand. While domesticdemand has picked up after a relatively successful containment of the pandemic,it remains susceptible to the risk of further waves of COVID-19 infection.Moreover, scarring effects of the pandemic, such as the impairment of thebalance sheets of the business sector, and the hit on labourmarket may undermine the prospect of recovery.

The office also highlighted the necessity for greater fiscalsupport through both revenue and expenditure measures in order to support thenascent economic recovery if the growth momentum are to weaken, while targetedsupport to micro, small and medium enterprises and low-income households needsto continue and be regularly reviewed for its relevance and effectiveness.

Enhancement of support programmes through simpler andbetter-targeted disbursement will facilitate the effective use of governmentfunds, it added.

Given the benign inflation outlook, the office said that itis essential that monetary policy remains supportive of economic recovery,keeping financing costs affordable for households and businesses.

With more accommodative financial conditions, heightenedsupervision of lending to risky sectors remains warranted to mitigate the riskof an asset bubble. In addition, enhanced supervision in this sector isimportant in order to safeguard the quality of bank credit in the period ahead.

It is essential to ensure continued support for long-termdevelopment issues, such as infrastructure development, human capitaldevelopment, social safety net, and particularly public health, while carefullymanaging risks to long-term fiscal sustainability, the AMRO said./.