Vietnam economy hit hard by COVID-19 pandemic: WB

The manufacturing industry bears the brunt of the coronavirus pandemic

After showing some resilience with a GDP growth rate estimated at 3.8% in the first quarter of 2020, the economy was hit by restrictive measures introduced in April to keep the coronavirus disease in check. The index of industrial production (IPP) in April fell 13.3% compared to March or 10.5% year on year, which is the biggest decline ever recorded. Retail sales also declined 9.6% year-on-year due to rising uncertainty and travel restrictions faced by consumers.

The World Bank cited the Vietnam General Statistics Office’s latest report as saying processing and manufacturing industries were most heavily impacted with 1.2 million jobs affected during the first quarter, followed by wholesale and retail, 1.1 million, plus accommodation and catering services, 740,000.

Unemployment among workers 15 years and above also reached a 5-year high, reaching 2.22% at end of March, up 0.07% against the previous quarter. As many as 18,600 companies temporarily suspended business in the first quarter, up 26% year-on-year.

On the external front, Vietnam’s merchandise exports continued to grow in the first months of 2020 but at a slower pace than during the pre-COVID period, indicating weaker external demand and some disruption of global supply chains as well as the temporary ban on rice exports. The value of merchandise exports is estimated to have increased 4.7% year on year in the January-April period compared to the 6.5% growth in the same period of 2019.

The export value of the foreign-invested sector – the engine of Vietnam’s exports, grew by only 1.5% compared to 4.4% in the same period last year. While there are not yet official estimates, the trade service and income balance have significantly deteriorated due to the almost stop in foreign tourist arrivals which saw a 98% decline in April 2020 compared to a year earlier and the expected large decline in remittances.

In the first four months of 2020, committed foreign direct investment (FDI) amounted to US$12.3 billion, a year-on-year decrease of 15.5%. Surprisingly, the value of FDI commitment rebounded in April, up by 81% over March 2020 and 62% over April 2019.

However, the economy has the chance to pick up its momentum again in the post-coronavirus period, said the World Bank, reasoning credit grow gradually rebounded in March after sluggish growth in the first two months of 2020.

The State Bank of Vietnam (SBV) reported that by the end of March credit rose 1.3% year-to date or 11% year-on-year. The SBV provided support through a package of measures introduced in early March to allow banks to restructure loans and lower interest rates on borrowers. It also considered liquidity support through credit growth for certain commercial banks that would contribute to more lending to businesses facing liquidity shortages.

Fiscal outturns in the first quarter of 2020 started to reflect the trends that are expected to materialize over the remainder of the year: declining revenue and higher spending. According to the Ministry of Finance, estimated budget revenue in the first quarter 2020 increased by only 1.8% compared to the same period last year. The result reflects better collection performance in the first two months before the slowdown in economic activity and the implementation of various tax deferrals that came into full effect in April.

During the first quarter, total expenditure rose 8.7% year on year, which is about 5% higher than the GDP growth rate during this period. This increase is explained by the Government’s willingness to accelerate the implementation of key infrastructure projects.

Fitch Ratings has revised the Outlook on Vietnam to Stable, from Positive, and has affirmed the rating at 'BB'. The Outlook revision reflects the impact of the escalating COVID-19 pandemic on Vietnam's economy through its tourism and export sectors, and weakening domestic demand. It has confirmed Vietnam's strong medium-term growth prospects based on its record of macroeconomic stability, low government debt levels and resilient external sector, including relatively large foreign exchange reserves.