Vietnam’s economy witnessed a significant shrink in service and industrial sectors in April when the government decided to carry out a social distancing across the country in the first three weeks of April in order to prevent the spread in the community of the Covid-19 pandemic.
Specifically, the number of foreign tourists in April sharply dropped by 98.2 percent compared to the same period of 2019, after the government temporarily suspended the granting of new visas to foreign tourists from March 18th. The tourism revenue in April 2020 plummeted by up to 97.5%. Retail sales and accommodation and catering service revenue fell by respectively 15.3 percent and 64.7%.
For industrial sector, the Purchasing managers Index (figures released by HIS Market) set a new record low in April with 32.7 points in the context of the weakening demand (both in domestic and foreign markets) as well as the negative impacts of the temporary supply chain disruption.
Vietnam’s Index of Industrial Production (IIP) in April 2020 also decreased by 10.5 percent over the same period of last year and witnessed a decline in most industries, particularly motor vehicle manufacturing (down by 44.2%), clothing production (down by 17.6%), manufacturing of electronic products, computers and optical products (down by 10.4%), while only pharmaceutical, medicine manufacturing (up by 29.3%) and chemical manufacturing (eight percent) recorded significant growth.
In a recent macroeconomic report, VNDirect Securities Company said that although the government has life the social distancing order from April 23rd, economic activities need a long time to completely recover, particularly tourism, entertainment and processing and manufacturing industries.
“Therefore, we estimate that the Gross Domestic Product (GDP) in the second quarter (Q2) of 2020 will fall by 0.6 percent compared to the same period of 2019 and lower the GDP growth forecast for the whole year 2020 to 4.5%,” said VNDirect.
The securities company said that the GDP growth will recover rapidly in the second half of 2020 with GDP growth in Q3 and Q4 reaching respectively six percent and 7.4 percent compared to the same period of 2019, thanks to the recovery of tourism and industrial sectors when the domestic demand gradually recovers after the government lifted the social distancing. In addition, the public investment, which is expected to speed up from Q3 2020, will also promote the total investment of the whole society (including investment of the private sector) thereby promoting Vietnam’s economic growth.
According to VNDirect, public investment will be a key growth driver for growth in 2020.
Regarding inflation, the oil price decline has contributed to curbing inflation. The Consumer Price Index (CPI) in April increased by 2.9 percent compared to the same period of 2019 (significantly down compared to the 4.9 percent recorded in March 2020).
“We believe that the oil prices will continue to remain low until Q3 2020 because many countries will continue to carry out social distancing policy to prevent the spread of the Covid-19 pandemic and this will affect the demand for petrochemical products,” VNDirect predicted.
The Vietnamese government has taken strong measures to curb inflation, including requiring large domestic pork suppliers to lower the price of live hog to 60,000 dong per kilogramme, and increasing the pork import quota to increase domestic pork supply.
With the above measures, VNDirect expected the pork price to gradually return to 65,000 dong per kilogramme by the end of this year, from the current price of about 80,000 85,000 dong per kilogramme
In addition, the government has called for a 10 percent reduction in electricity bills in the period from May to July in order to curb inflation.
“We believe that the government will successfully control inflation this year and maintain the average inflation forecast for 2020 at 3.2%,” stated VNDirect’s report.
Regarding interest rates, the SBV has recently lowered the operating rates one more time to support the economic growth. According to VNDirect, the SBV may continue to cut operating rates by 0.25 0.5 percent in the second half of 2020 to support the economic growth in the context when the inflation pressure will cool down rapidly from the end of Q3 2020.
VNDirect also mentioned that in the near future, Vietnam needs to be prepared to receive a new wave of foreign investment, when China is gradually losing its image and priority in the global supply chain.
In the recent time, many large US corporations have expressed their intention to set up factories or expand production capacity in Vietnam, including Google, Microsoft, HP, and Dell. Specifically, Microsoft intends to produce Surface computer products in Vietnam, while HP and Dell plan to transfer up to 30 percent of their laptop production capacity to Southeast Asian countries, including Vietnam.
“To welcome the new wave of direct investment of international investors into Vietnam, the government has asked leaders of industries and businesses to urgently prepare the best conditions, including the improving business environment, reforming admistrative procedures and doing research to make preferential investment policies for foreign investors,” said VNDirect’s experts.
