Vietnam remains one of fastest growing economies in Asia despite COVID-19 slowdown

Vietnam remains one of the fastest growers in Asia

Economic growth decelerated to 3.8 per cent in the first quarter of 2020, from 6.8 per cent 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 parts 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 per cent in the first quarter of 2020, down from 6.5 per cent in the corresponding period in 2019.

To support economic activity, in early March the government unveiled a $10.8 billion (0.4 per cent of gross domestic product) credit relief package to assist debt restructuring and lower interest rates and fees. The government also launched a fiscal package worth $1.3 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 per cent, lowered interest rate caps on dong deposits of less than six months and on short-term dong lending to prioritised 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 per cent in 2021 – the 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 the eventual return of economic growth in the People’s Republic of China, which would help revive the global value chains.