The report details how the country’s economic growth is expected to fall sharply in 2020 to 4.8% due to the initial supply shock to economic activity caused by the COIVD-19 outbreak and the subsequent drop in demand from a number of the country’s key trade and investment partners.
|With orders delayed or cancelled, many businesses have taken the brunt of the COVID-19 epidemic
The first quarter of the year saw economic growth decelerate to 3.8% from the 6.8% figure seen during the corresponding period in 2019. This can partially be attributed to restrictions imposed by the government as a means of slowing the spread of the virus, thus leading to lower domestic consumption.
Despite the manufacturing sector successfully making it through initial difficulties caused by the COVID-19, the inventory of inputs, including those that are part of global value chains, are being depleted.
Elsewhere, growth in agriculture has stagnated as a result of a lower demand for agricultural exports in addition to severe salinity intrusion in the Mekong Delta.
Growth in services, the sector hardest hit by the outbreak of the pandemic, halved to 3.2% in the year’s first quarter, a fall from 6.5% on-year.
To support the economy, the Vietnamese government unveiled a US$10.8 billion credit relief package in early March aimed at restructuring debt and lowering interest rates and fees.
It also launched a fiscal package worth a total of US$1.3 billion which looks to reduce taxes and fees for firms negatively affected by the coronavirus, along with allowing tax deferrals, with greater fiscal support expected to be a theme moving forward.
Moreover, the central bank also cut policy rates by 0.5% to 1.0%, as well as lowering interest rate caps on deposits of Vietnam Dong of less than six months and on short-term lending to prioritised sectors.
Overall, the economy’s fundamentals can be considered to be resilient, according to ADB’s flagship annual economic publication. If the pandemic is successfully contained within the first half of the year, growth should rebound to 6.8% ahead in 2021, a figure that had been ADB’s pre-COVID-19 forecast for the country in 2020, which also looks set to enjoy growth in the medium and long-term.
“Despite the deceleration in economic activity and the downside risks posed by the COVID-19 pandemic, Vietnam’s economic growth is projected to remain one of the highest in Southeast Asia,” said ADB Country Director for Vietnam Eric Sidgwick.
Some of the typical indicators of economic growth, including a growing middle class and a dynamic private sector, remain robust whilst the country’s business environment is continuing to improve. Public spending aimed at combating the impact of the pandemic, which rose significantly during January and February, is likely to be raised further in the near future.
Furthermore, the large number of bilateral and multilateral trade agreements that Vietnam participates in, which serve to improve market access, will ultimately contribute to helping the country’s economic rebound.
The country will also be a beneficiary of China’s efforts to contain the COVID-19 pandemic, in addition to their eventual return to enjoying economic growth, which will serve to revive global value chains.
The report concludes with the ADB affirming their commitments to achieving a prosperous, inclusive, resilient, and sustainable Asia and Pacific region, while maintaining efforts to eradicate extreme poverty.