Vietnam’s economic growth rate forecasted to slow to 4.8% in 2020
  • | | April 04, 2020 06:45 AM
Vietnam’s economic growth rate is expected to slow sharply in 2020, to 4.8%, from the initial supply shock to economic activity from the outbreak of the novel coronavirus (COVID-19) and the subsequent and ongoing drop in demand from Vietnam’s principal trade and investment partners, says a new Asian Development Bank (ADB) report released Friday.

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Economic growth decelerated to 3.8% in the first quarter of 2020, from 6.8% in the corresponding period in 2019. Travel and other restrictions imposed by the government to slow the spread of the virus led to lower domestic consumption. Manufacturing managed to weather the headwinds early on but the inventory of inputs, including those part of global value chains, are being depleted. Growth in agriculture stagnated because of lower demand for agricultural exports and severe salinity intrusion in the Mekong Delta. Growth in services, the sector hardest hit by the pandemic, was halved to 3.2% in the first quarter of 2020, down from 6.5% in the corresponding period in 2019.

To support economic activity, in early March the government unveiled a USD10.8 billion (0.4% of gross domestic product) credit relief package of debt restructuring and lowered interest rates and fees. The government also launched a fiscal package worth USD1.3 billion that reduces taxes and fees for affected firms and defers tax payment, and the fiscal support is expected to rise. The central bank also cut policy rates by 0.5-1.0%, lowered interest rate caps on dong deposits of less than 6 months and on short-term dong lending to prioritized sectors.

The economy’s fundamentals remain resilient, according to ADB’s flagship annual economic publication, the Asian Development Outlook (ADO) 2020. If the pandemic is contained within the first half of 2020, growth should rebound to 6.8% in 2021—ADB’s pre-COVID-19 forecast for Vietnam in 2020—and remain strong over the medium and long-term.

“Despite the deceleration in economic activity and the downside risks posed by the COVID-19 pandemic, Vietnam’s economic growth is projected to remain one of the highest in Southeast Asia,” said ADB Country Director for Vietnam Eric Sidgwick.

Drivers of economic growth—a growing middle-income class and a dynamic private sector—remain robust. The country’s business environment continues to improve. Public spending to combat the impact of the pandemic, which rose significantly in January and February, will likely be raised further. The large number of bilateral and multilateral trade agreements Vietnam participates in, which promise improved market access, will help the country’s economic rebound. Vietnam would also benefit from the containment of the COVID19 pandemic and eventual return of economic growth in the People’s Republic of China, which would help revive the global value chains.

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