Economy growing against the flow

12:41 | 15/03/2020
Despite serious blows from the the global health epidemic, Vietnam’s lowered economic growth this year is nevertheless expected to remain far higher than that of regional nations due to its great efforts to create a business-friendly climate, and the knock-on implications of free trade agreements.
economy growing against the flow
Economy growing against the flow, illustration photo - Le Toan

Global economic analysts TradingEconomics last week released its fresh forecast on the country’s economic growth this year, taking into account the COVID-19 outbreak which has reached over 80 countries across the world.

The firm stated that Vietnam’s annual GDP growth rate is expected to be 5.5 per cent by the end of this quarter. “Looking forward, we estimate the rate to stand at 6.4 per cent in 12 months’ time. In the long-term, the rate is projected to trend around 6.5 per cent in 2021.” GDP is expected to hit $265 billion by the end of the year, and to trend around $289 billion in 2021 and $325 billion the following year.

The Vietnamese government previously expected the rate to reach 6.8-7 per cent this year. Prime Minister Nguyen Xuan Phuc has ordered that despite difficulties caused by COVID-19, Vietnam will not alter its growth targets and all efforts must be made to reach them.

However, Fitch Ratings, one of the world’s three largest rating firms, has revised down Vietnam’s 2020 GDP growth forecast to 6.3 per cent, from 6.8 per cent divined in January, due to the outbreak.

Fitch Ratings said it believed the COVID-19 outbreak will heavily impact growth in the first half of the year, mainly due to disrupted supply chains in the region which would weigh heavily on manufacturing and weak tourist arrivals, as well as general domestic fears of infection which would drag on service activity. Its forecasts currently factor in assumptions of a gradual subsiding of the virus outbreak in the second half of 2020, which underpins its view for a sharp rebound in trade activity as supply chains and tourism activity normalises.

The Asian Development Bank and the World Bank in Vietnam are currently reassessing the global economy, as well as that of Vietnam. Both institutions said that the epidemic could take a heavy toll on the country’s economic growth this year.

It is expected that the ADB will revise Vietnam’s growth in the next few weeks, which was earlier forecast by the bank to grow 6.8 per cent this year.

Economic monitoring group FocusEconomics told VIR that it forecasts the Vietnamese economy to grow 6.5 per cent in 2020, down 0.1 percentage points from last month’s forecast, and 6.6 per cent in 2021. The key reason, in line with other analysts, is COVID-19’s negative impacts.

However, according to international experts, despite possible lower-than-expected economic growth this year, Vietnam is projected to remain one of the ASEAN’s top performers in 2020 thanks to strong domestic demand.

Specifically, according to FocusEconomics, the growth rates this year for Asia will be 4.2 per cent, the ASEAN 4.3 per cent, Brunei 2.8 per cent, Indonesia 5 per cent, Laos 6.4 per cent, Malaysia 4.1 per cent, the Philippines 6.2 per cent, Singapore 1 per cent, and Thailand 2.3 per cent.

The reason behind Vietnam’s expected better performance is that the country is pushing up its economic restructuring, making it a more enticing destination for investors and businesses. In particular, free trade agreements have also been making Vietnam a more attractive place to do business.

“In February the European Parliament approved the EU-Vietnam trade deal, paving the way for it to come into force later this year and boding well for the external sector in the medium-term,” FocusEconomics said in a statement.

Despite the rising number of nations and territories being affected by the outbreak, Vietnam has seen no new cases for over two weeks, and all 16 previous cases recovered. Over the past few weeks, Vietnam’s government held a meeting every 48 hours to discuss the epidemic and solutions to curb it.

At last week’s cabinet meeting, PM Phuc stressed that the government “stands ready to sacrifice a number of economic benefits in order to protect the health of citizens, tourists, and expatriates here in Vietnam.”

He cited some reports stating that COVID-19 is expected to cause a loss of $30 billion to the global aviation industry, and $80 billion to the global tourism industry.

“This will have a heavy impact on Vietnam’s economic growth this year, especially in the sectors of aviation, tourism, services, and trade and investment,” the prime minister said.

TradingEconomics added that Vietnam’s Manufacturing Purchasing Managers’ Index, calculated by London-based global information provider IHS Markit, fell to 49.9 in February from 51.8 in January.

“This was the first drop in manufacturing activity in over four years, as the sector was severely affected by the COVID-19 outbreak,” TradingEconomics said in its report. “Output fell at the fastest pace for over 6.5 years, while new orders shrank for the first time since November 2015, which was partially driven by a fall in export sales.”

Some survey respondents mentioned weaker order flows from China when explaining the fall in international business. In addition, employment shrank for the first time in four months and was the fastest for over six years. Buying activity also dropped for the first time in over four years.

On the cost front, shortages of necessary inputs led to a rise in the cost burden, TradingEconomics said.

By Khoi Nguyen

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