Vietnam's economy starts growing again

Vietnam's retail sales have recovered strongly after social distancing was relaxed. Photo: H. Anh.

Retail market also recovered

According to the World Bank (WB), after being affected by social distancing in April, the Industrial Production Index (IPI) in May rebounded 11% compared to April and decreased 3% compared to May 2019.

Retail sales also recovered strongly in May. Passenger and freight carriage increased by 116% and 32%, respectively, in May compared to April, due to measures to restrict domestic travel were gradually relaxed from April 23.

According to the WB, although Vietnam's export turnover increased by about 5% in May compared to April, it decreased by 5.5% compared to the same period last year, due to weak external demand and possibly due to some disruptions in global supply chains.

Export turnover of key labor-intensive items of Vietnam such as garments and leather shoes decreased by 14% and 5%(compared to the same period last year) while technology export items, such as smartphones, decreased by 9% (compared to the same period last year).

In addition, FDI inflows into Vietnamin May wereslower than in April. In the first five months of 2020, the committed value of FDI reached US$13.9 billion, which is still a high level butreduced by 17% compared to the same period last year.

In the first four months of 2020, credit allocated to the economy is estimated to increase by 10% compared to the same period last year.

According to the World Bank, due to the decline in import and export activities, tax revenue related to import and export decreased by 19% (compared to the same period last year). Domestic revenue dropped even more in April, when the state revenue decreased nearly 25% from the previous month, only 65% compared to April 2019.

Economic activity much lower than before Covid-19

Despite the fact that Vietnam's economy started growing again, the World Bank said that it has not yet fully recovered.

Accordingly, CPI in May sawless fluctuations, so the inflation rate was only 2.4% compared the same period last year, lower than the 2.9% in April and 4%in January 2020.

The price level slowed down mainly due to the decline in domestic food demand, the price of crude oil fell to a record low level in the international market, causing a spread effect to domestic gasoline prices.

The total Government revenue in the first four months decreased by 5.9% compared to the same period last year. The largest reduction was recorded for value added tax and corporate income tax, at 9.3% and 7.3%, respectively.

The World Bank affirmed that Vietnam's economy responded quickly after the measures of domestic social distancing were relaxed in May, with an increase of 10% in manufacturing, processing and retail sales.

However, economic activity was still much lower than the period before Covid-19. The FDI sector began to be affected by weak global demand, while the Government continued to use fiscal and monetary policies to compensate for the financial impact of the Covid-19, leading to a high growth of domestic bank credit and a decline in budget revenues.

“The second-quarter GDP data is expected to be published in the future, which will help monitor Vietnam's economic trajectory. Regardless of the data, it is necessary to pay more attention to the possibility of the impact on inflation due to monetary easing and an increase in overspending due to tax revenues have not met the targets set for early 2020,”the World Bank noted.