U.S. research firm Fitch Solutions has lowered Vietnam’s economic growth forecast in 2020 to 6.3% from 6.8% due to the Covid-19 outbreak.
According to Fitch Solutions, the outbreak will heavily impact growth in the first half of the year due mainly to disrupted supply chains in the region, falling tourist arrivals and public fears of infection.
A gradual subsiding of the virus outbreak in the second half of the year, which would create a sharp rebound in trade activity as supply chains and tourism normalize, has been taken into account for the forecast.
Vietnam’s manufacturing sector, which accounts for 16% of GDP, will come under heavy pressure from supply chain disruptions as a result of the Covid-19 outbreak in China, a key source of raw materials and also a major export market for Vietnam.
Experts at Fitch Solutions believe that many companies, particularly small to medium-sized firms, are likely to struggle in their search for an alternative source of inputs in the short term.
Services (42% of GDP) growth will also come under stress from weaker domestic and foreign demand. Work disruptions, which will impact wages, and general paranoia over community cross-infection of the coronavirus will create weaker retail activity, which accounts for some 11% of GDP.
Fitch Solutions stated that support measures by the government will help alleviate the negative growth shock. Fiscal and monetary stimulus will be necessary to help the economy respond to the crisis.
Economic growth is expected to rebound in the second half of 2020, assuming the virus is contained by then. This would be underpinned by a clearing of backlogged factory orders during the first half of the year upon the normalization of supply chains and the resumption of tourism following an easing of global uncertainty around the virus’ outbreak.
However, the growth rebound in the latter half of the year could be weaker than forecast, as even if manufacturing activity can be ramped up to clear the backlog of work, infrastructure bottlenecks at the ports may still limit the extent of the rebound. A localized outbreak in Vietnam could also see an increase in mass quarantines, which would weigh on private consumption activity.
@ The Saigon Times