Economic growth will reach 8.1% this year as the economy rebounds, but will slow to 5.1% in 2022 and 2023. The swift recovery, driven by strong exports on the back of re-opening of overseas economies and robust investment, has stalled in the second half of the year. A large real estate company’s default is shaking financial markets and confidence in the sector, thereby weakening real estate investment, an important engine of growth. Prospects for manufacturing investment have also worsened due to temporary power cuts in a large number of provinces. Consumption growth is stable, but adverse confidence effects coupled with inadequate social protection still hold it back. Consumer price inflation is low as there is only limited pass-through from surging prices in upstream industries.
The pandemic highlighted weaknesses in the health and social security systems and pushed many households and firms to the brink of bankruptcy. It further widened inequalities between: (i) central provinces and the coast; (ii) already indebted poor households and wealthier ones and (iii) the private sector, with limited access to infrastructure contracts and hardly hit by slackened demand, and the state-owned sector. Such divides need to be addressed to make growth inclusive and sustainable.
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2021 Structural Reform Priorities