A gloomy future for Vietnamese economy

Vietnam’s economy is suffering from seriously negative consequences after a long time of applying extreme social distancing and other anti-epidemic measures.


Thousands of companies withdrawing from the market


Since the dawn of the fourth outbreak of COVID-19 in Vietnam, social distancing measures have been applied in the two largest cities. Moreover, the economy is facing a disruption in supply chain.


Most worryingly, 85.5 thousand businesses have withdrawn from the market, up 24.2% compared to 2020. The number of enterprises temporarily suspending business is 43.2 thousand. Accordingly, the Vietnam Purchasing Managers' Index (PMI) fell to 40.2 points in August from 45.1 points in July. This shows that the health of the manufacturing sector has declined sharply.


The prolonged social-distancing measures have reversed some important economic indicators and caused disruption in supply chain and damage the reputation of Vietnam as a safe manufacturing area. Besides, the restriction of travel from region to region has caused a shortage of labor and raw materials. In addition, the concept of "essential goods” is different from place to place, thus hindering the transportation and circulation of goods.


Revenues and orders of businesses have experienced sharp decline. It was also hard to mobilize capital when unusual expenses due to the pandemic increased. On top of that, the supply chain of processed and manufactured goods such as electronics, machinery and equipment has been disrupted in strongly infected areas.


Uncertainty surrounding the economy


The world economy in general and Vietnamese economy in particular are experiencing unprecedented difficulties in history.


One of the biggest negative effects of this pandemic is disruption in global supply chains. Meanwhile, Vietnam is an open economy, heavily dependent on this chain. The total import-export turnover of Vietnam is about 200% of its GDP, which is much higher than that of many countries in the world.


It is very hard to make a forecast for Vietnam’s economic growth in the last months of 2021 because of the following reasons.


First, the state budget is gradually running out. Second, businesses are weakening, especially domestic ones due to the severe and prolonged effects of the epidemic and social distancing.


One of the signs showing the instability of the economy is inflation. Inflation is an indicator of macroeconomic stability. In the first 8 months of 2021, Vietnam's inflation reached 1.8%, which theoretically means that the macroeconomic is stable.


However, in reality, low inflation only shows price stability in the market. Meanwhile, the economy of Vietnam is full of uncertainty. This is a sign of price stagnation and weak purchasing power due to the decrease in people's incomes. Consumers are not willing to spend.


Currently, the world economy is recovering. The World Bank's forecast shows that major economies are recovering very rapidly. The recovery rate of the US in 2022 is expected to reach 5.4%, while that of the EU is 6.8% and China 8%.


Source: VietnamCredit

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