Vietnam’s economy severely impacted by the Covid-19 pandemic

Not-so-optimistic GDP growth forecast


The Asian Development Bank (ADB) has lowered its forecast for Vietnam's GDP growth in 2021 by 2 percentage points compared to the previous report.


According to the ADB, the Covid-19 pandemic outbreak has caused a shortage of labor supply due to social distancing. Labor disruption will lead to a disruption in agricultural supply chains. On the other hand, agricultural exports may be affected by the coming rainy season as well as the quarantine measures applied to Vietnam's agricultural exports.


In addition to agriculture, labor-intensive manufacturing industries are also affected, especially when there is a shortage of human resource, which leads to a reduction in output. Vietnam’s Purchasing Managers' Index fell below 50 from June to August, signaling a decline in the manufacturing sector. As a result, industrial growth is forecast to decrease to just 5% this year.


The closure of tourist resorts and travel restrictions will continue to affect tourism, reducing service growth from 7.3% in 2019 to a forecast of 3.3% this year.


Besides, cumbersome administrative procedures, especially in issuing travel permits, have disrupted labor mobility and food supply chains, exacerbating the pandemic's impact on the country's economy.


Currently, ADB believes that Vietnam's GDP in 2021 will only grow by 3.8%, sharply lower than the previous forecast of 6.7% or 5.8%. However, ADB is still optimistic about Vietnam's growth prospects in the medium and long term. Growth can be supported by a recovery in domestic demand, accelerated disbursement of public investment, expansion into new export markets brought about by trade agreements, and a recovery in the global economy.


Nevertheless, the short-term growth outlook is still fraught with challenges. The main risk is a prolonged pandemic, especially if vaccination rates across the country do not increase significantly. Growth also depends on timely government delivery of essential goods including food and cash to vulnerable populations affected by the pandemic.


Businesses are to exit the market


According to the Private Economic Development Research Board of Vietnam (Board IV), nearly 70% of the total more than 21.5 thousand businesses participating in an online survey conducted by the Board from August 12 to 22, 2021 are temporarily closed due to the negative impact of the Covid-19 pandemic. Most of these companies are small and micro enterprises. Sixteen percent of the surveyed companies still try to maintain production, part of the business while the rest have been dissolved.


The rate of enterprises suspending production and business activities due to the epidemic in Ho Chi Minh City, Binh Duong and Dong Nai is higher than the general average and is over 71%. These are also provinces/cities with a very high number of Covid-19 cases and prolonged social distancing measures.


Companies operating in the fields of fisheries, services, and agriculture and forestry accounted for the highest rate of dissolution, followed by industry and construction. The number of construction enterprises that had to suspend their business was 76%, which is the highest when compared to other economic sectors.


It is worth noting that nearly half of the businesses that have suspended operations do not know how long they will have to "hibernate". According to Board IV, this shows that businesses are currently quite passive, unable to anticipate plans for labor use, material ordering or other plans even in the short term.


The number of businesses expected to close for one to three months accounted for 28.5%. More than 10% are expected to stop operation from three to six months while 2.5% of businesses are pessimistic that they have to close for half a year.


Meanwhile, the number of businesses with cash flow to help maintain operations for 1-3 months accounts for 46%. The number of suspended businesses whose cash flow can only help maintain operations for less than a month accounts for 40%, which is 2.5 times higher than those trying to maintain operations.


Business households are the most vulnerable with 45% of households reporting that they could maintain operation for less than a month. This figure for private enterprises, limited companies and joint stock companies is 39.5%; state-owned enterprises 30%; and foreign-invested enterprises about 23.5%. This shows that if businesses continue to have to close for more than a month without external support, chances are high that they have to be dissolved.


Source: VietnamCredit

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