The Vietnamese economy is showing signs of recovery from the prolonged COVID-19 outbreak, but how quickly it picks up heavily depends on the pace of vaccination, the effectiveness of pandemic prevention measures, and the government’s bailout packages.
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The view was shared by economists at a recent workshop in Hanoi to review Vietnam’s macroeconomic performance in the past three quarters and made recommendations for the remaining months of the year.
The event was co-hosted by the Vietnam Institute for Economic and Policy Research (VEPR) under VNU University of Economics and Business (UEB) and Konrad-Adenauer Stiftung (KAS) via an online platform.
COVID-19 deals heavy blow to economic performance
According to the General Statistics Office (GSO), the national economy suffered a contraction of 6.17% in the third quarter of the year, a record low figure since the announcement of Vietnam’s quarterly GDP so far.
This plunge mirrors the adverse impact of drastic social distancing measures introduced by the Government in order to contain the fourth COVID-19 outbreak. The downward trajectory can be seen in many economic sectors such as services, transportation, wholesale and retail, and construction, except for the agro-forestry-fishery sector.
Overall, the Vietnamese economy during the nine-month period grew by merely 1.42% year on year as the prolonged COVID-19 outbreak severely disrupted supply chains, affecting production and export activities across the country, especially in southern coronavirus hotspots.
In addition, the country’s Manufacturing Purchasing Managers’ Index (PMI) has continued to experience a downward trend since the second quarter of the year, dropping from 45.1 points in July to 40.2 points in September. This low PMI level indicates deterioration in business outlook within the manufacturing sector.
Notably, for the first time since 2010, the number of enterprises that have either temporarily been suspended or dissolved exceeds the number of newly-established enterprises. Local businesses continued to face higher risks of financial distress, as apart from increased production input costs, those in the southern key economic region are enduring additional costs from COVID-19 testing for their employees for instance.
FDI inflows and exports see positive signs
Despite the poor economic performance, FDI attraction remains a bright spot in the overall gloomy picture. Total new and additional registered capital into Vietnam in the third quarter surged by 50% and 67% to US$2.95 billion and US$2.3 billion, respectively, prompting the nine-month FDI capital to hit US$22.15 billion, a year on year increase of 4.4%.
Singapore topped the list of 62 foreign investors in Vietnam, pouring US$4.98 billion into investment projects, followed by Japan with US$2.4 billion, China’s Hong Kong with US$1.49 billion, and the Republic of Korea with US$767.7 million.
Meanwhile, exports continue to make a practical contribution to economic growth. Statistics show the opening nine months of the year saw Vietnam rake in US$158.34 billion from exports, rising 29% year on year. Worthy of note is that US$116.74 billion was generated by the FDI sector, including crude oil exports, up 33% year on year.
Apparently, the FDI sector is taking advantage of bilateral and multilateral free trade agreements (FTA) Vietnam has signed with partners to increase exports.
The United States was Vietnam’s largest goods consumer, spending US$45.58 billion on imports, a year-on-year rise of 4.7%. It was followed by China (US$24.9 billion, up 8%), the European Union (US$19.3 billion, up 28.2%), the Republic of Korea (US$10.32 billion, up 13.3%) and Japan (US$10.6 billion, up 8.2%).
However, the nine-month trade balance saw a trade deficit of US$993 million compared to a trade surplus of US$1.85 billion recorded in the corresponding period last year. Businesses have resumed production since travel restrictions were eased in early October, and therefore they need materials for production that fuels imports.
Recommendations for economic recovery
According to experts, economic outlook in the remaining months of the year heavily depends on the pace and scale of vaccination, the effectiveness of pandemic prevention measures, and bailout packages the Government has introduced to cushion the impact of the COVID-19 outbreak and support businesses in production.
Amid the complicated nature of the COVID-19 pandemic, experts underlined the necessity to devise an overall and consistent strategy to deal with different pandemic scenarios, resolve inadequacies regarding cross-contamination in isolation areas, medical declaration, disruption in goods circulation, and a lack of medical equipment.
They also recommended that the Government and relevant ministries urgently deploy support packages for unemployed workers, especially those in the non-official sector.
In addition, fiscal policies should focus on accelerating disbursement of major national infrastructure projects, while monetary and markets tools should be governed in an appropriate and moderate manner to control inflationary pressure that normally builds up by year’s end.