According to the forecast of the Asian Development Bank (ADB), the growth momentum of Vietnam's economy will be maintained if the Covid-19 pandemic is controlled in the first half of 2020, and the economy will recover with the growth rate of 6.8% in 2021.
On April 3, Asian Development Bank (ADB) released the Asian Development Outlook 2020 report (ADO 2020). In particular, this organization predicted that Vietnam's economic growth would decline sharply to 4.8% in 2020.
The reason for this decline is because the Vietnamese economy was affected by the supply shock due to the impact of the Covid-19 outbreak, followed by the sharp decline in demand which is still taking place in countries that are the main trade and investment partners of Vietnam.
According to the ADB report, Vietnam's economic growth rate fell to 3.8% in the first quarter of 2020, which is a sharp decrease from 6.8% in the same period of 2019.
Travel restrictions to prevent the spread of the virus have led to slower domestic consumption. The manufacturing industry maintained its production despite the initial difficulties, mainly relying on inventory materials, but this source is also decreasing. Agricultural production has stalled due to reduced demand for agricultural exports, and the serious impact of saltwater intrusion in the Mekong Delta. Growth of the service sector, which was most affected by the pandemic, fell to only 3.2% in the first quarter of 2020, a sharp decline from 6.5% in the same period of 2019.
To support economic activities, at the beginning of February, the Government of Vietnam offered a credit support package worth USD 10.8 billion (about 0.4% of GDP) including rescheduling payment term, reducing interest rates and fees.
The government has also offered two support packages which are worth USD 1.3 billion. The packages cover reduction on taxes and fees for affected businesses, extension of tax payment deadlines, etc. It is expected that government's budgetary support will increase.
The State Bank also cut policy interest rates from 0.5 to 1%, lowered the ceiling interest rates for deposits in VND with terms of less than 6 months and lowered the ceiling interest rates for short-term loans in VND for certain areas.
According to ADB, the growth momentum of Vietnam's economy will be maintained. If the epidemic is controlled in the first half of 2020, the economy will recover with a growth rate of 6.8% in 2021 as announced in ADB's forecast before the outbreak of Covid-19, and the economy will continue to grow strongly in the medium and long term.
"Despite the economic downturn and the risks of the Covid-19 epidemic, Vietnam is still one of the countries with the fastest economic growth in Southeast Asia." said the country director of ADB in Vietnam Eric Sidgwick.
According to the ADB report, driving forces of economic growth which are a growing middle class and a dynamic private sector are still developing strongly. Domestic business environment continues to be improved. Public spending in response to the impact of the epidemic has increased sharply in the first two months of 2020, and is expected to increase in the time to come.
The large number of bilateral and multilateral trade agreements that Vietnam has participated in, promising to increase market access, will help the economy accelerate again. Vietnam will also benefit from China's containment of the Covid-19 epidemic. In addition, the recovery of China's economy will contribute to restoring the global value chain.
Writer: Alice Hoang Thao - VietnamCredit
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