26.2 C
Ho Chi Minh City
Saturday, July 20, 2024

Hopes for a rebound

Must read

So far, the Covid-19 pandemic has not exerted serious effects on Vietnam as far as human losses are concerned. Economically, it is a quite different story, especially as of the second quarter. However, better economic indicators in Q3 has raised hopes for a better economic landscape.

Vietnam’s gross domestic product growth rate fell from 3.68% year-on-year in the first quarter to 0.39% in the second quarter, which dragged down the country’s overall economic growth in the first nine months of the year to only 2.12%, the lowest over the past three decades.

Lackluster economic performances were mainly due to lukewarm demands both at home and abroad. The first problem to encounter is industrial production potential remains bleak, where the pandemic’s effects are different in industries. The processing-manufacturing industry, which is the key engine for the overall growth, posted only 4.96% in Q2-2020 (it was 11.2% in Q2 of 2019) and 3.86% in Q3-2020 (11.68% in Q3-2019). Some of the hardest-hit sectors compared with their results in Q1-2020 are textiles and garments, woodwork, beverages, exploitation of coal and crude oil, and motorized vehicles and transport means.

Export markets play a crucial role in textile-garments and leather-shoes. Statistics show that difficulties in export come from the fact that the key export markets have yet to put the coronavirus under control. Moreover, concerns over economic growth have negatively affected consumer sentiment, which significantly undermines global consumption.

Production of garments declined by 3.2% in Q3-2020 compared with the year-ago period and export of textile and garments in the first nine months dropped 10.6% year-on-year, falling 6.42% in Q3 alone almost equal to the 6.3% mark in Q1. Production of leather and shoes fell almost 3.2% in Q3-2020, and export thereof plunged by 12.5% in Q3 and 8.6% in the first nine months of 2020.

In the third quarter, the service sector continued to suffer significantly while staging a slow recovery. International arrivals continued to plummet by 99% in Q3 year-on-year as Vietnam had yet to open her door to foreign visitors. Not long after the domestic travel industry began to achieve a rapid recovery at the start of July when summer vacation came, the return of the coronavirus in Danang forced the hospitality industry to see a decline of 60% in the third quarter (falling by 99.1% in September alone). The revenue of domestic travel services declined by 56.3% compared with the year-earlier period (it was 10% in the same period of 2019). Accommodation and food services continued to decline by 9.78% in Q3, making a fall of 17% in the first nine months of 2020.

It is projected that the recovery of the service sector, the hospitality industry in particular, will be way slower than other industries due to the sentiment that travel often falls far behind other essential demands in the context of plunging income.

Albeit a slump compared with the same period last year, foreign direct investment (FDI) in Vietnam staged an increase in the third quarter. The FDI inflow in Q3 was stronger than in Q2. FDI picking up again since April shows that foreign investors have been more interested in Vietnam, a nation said to be dealing well with Covid-19. This may underlie efforts to maximize the restructuring process of global value chains and diversify risks expended by multinationals. However, chances may be elusive as bottlenecks caused by labor quality and domestic supply chains are still lingering. The lack of foreign experts amidst the pandemic outbreak has clearly indicated this shortcoming.

The declining streak in domestic investment made by the private sector continued to unfold in Q3-2020. The investment growth rate of this sector rose by merely 1.6% over the same period last year, or one-tenth of the rate in Q3-2019. During the Jan.-Sep. period of 2020, nearly 38,600 enterprises suspended operation, rising 81.8% year-on-year.

Consumption is vital to short-term economic recovery. However, statistics show that consumption recovery has been slow. Household consumption rose slightly in Q3-2020 after a deep plunge in Q2. Final consumption growth fell to only 0.86% in the first nine months of 2020. Retail sales in this period increased humbly by 4.3% (versus 12.6% in the same period of 2019). The consumption profile also switched to more purchases of essential goods.

Trade balance set a surplus record of over US$11 billion in Q3-2020. Overall, in the Jan.-Sep. period, trade balance soared to a surplus worth US$16.99 billion.

Export growth rose unexpectedly in Q3-2020 by 11.2%, even higher than the 10.72% mark in Q3-2019. Although there were neither market profile changes nor export market shifts, the Covid-19 pandemic in combination with the on-going Sino-American trade war has significantly impacted Vietnam’s export activities. In the third quarter of 2020, there was an upsurge in Vietnam’s export to the United States and China, posting growth rates of 19.7% and 14.4%, respectively, and to the European Union, 6%. On the contrary, goods export to ASEAN, Japan and South Korea fell by 14.1%, 6.4% and 1.2%, respectively.

Dropping import contributed to Vietnam’s trade surplus, too. This situation stokes fears for falling export in the following quarters as a great part of imports are materials for export production.

Hard times ahead

Many difficulties in Q3 are forecast to sustain in the coming time. First, the recovery pace of export markets will be definitely slow as countries still have to face the pandemic. Many of them have had to re-imposed quarantine measures the way they did in the second quarter.

Next comes public investment, one of the main growth drivers in the past few months. Although both the central and local governments have been steadfast and unwavering in boosting this sector, disbursement of public investment in the first nine months of the year reached only VND303 trillion, or 59.7% of the year’s plan. This rate shows that expectations of growth from this regard are by no means easy.

The pressure on budget deficit will be remarkably bigger in the time to come as a result of falling collections and higher expenditure for fighting the epidemic.

Finally, the overall recovery will be slow due to weak demands, domestically and internationally. The service sector continues to face difficulties, which will adversely affect job creation. It will take a long time for the private sector to regain its strength because economic expectations are pessimistic. Recent statistics show that credit extended to small and medium-size enterprises dropped by 0.7%, and credit approved for export was only a half of the rate in the year-ago period. Meanwhile, credit for the agricultural sector rose modestly by 0.35%, and outstanding loans in many industries, such as commerce, services, tourism and consumption, have significantly declined.

By Dr. Tran Toan Thang & Dr. Pham Sy Thanh(*)

(*) This article is part of the macroeconomic report under the auspices of ActionAid Vietnam

More articles


Please enter your comment!
Please enter your name here

Latest articles