If Vietnam could hold on to the GDP growth of 1.81% in the first six months, this is already a success for the country, according to Bui Trinh of the Vietnam Development Research Institute (VIDERI).

A positive GDP growth rate for this year would be a success for Vietnam. Photo: Pham Hung.

While the Vietnamese economy has already been in a difficult situation since the first Covid-19 wave, the pandemic resurgence in July deals another blow to the business community and the overall recovery efforts.

“This resulted in high rate of unemployment, a growing number of enterprises going bankrupt, as well as the disruption of supply chains,” Trinh added.

The Central Institute for Economic Management (CIEM) in early July drew up two growth scenarios for Vietnam’s economy in 2020. In the most optimistic one, Vietnam's GDP could grow 2.6% year-on-year, lower than the International Monetary Fund (IMF)'s forecast at 2.7% and 3 – 4% projected by the National Advisory Council on Financial and Monetary Policies.

Meanwhile, in a worse case scenario, Vietnam’s economic growth is estimated at 2.1%. All these estimated figures, however, were calculated before the second wave of the disease broke out in Danang and a number of provinces.

In a similar fashion, a report from securities firm VNDirect suggested Vietnam’s GDP growth could be around 2.3% for this year, lower than 2.8% forecast by Bloomberg and 2.7% by the International Monetary Fund (IMF).

All the growth scenarios shared the same view that the negative impacts on the services sector would persist in the long term and be more severe than expected. Notably, catering, hospitality, tourism, transportation and entertainment may see sharp decline in growth in the third quarter at around the level of the second quarter when the social distancing order was in place, and then succumb to a contraction in the fourth quarter.

As a result, the services sector is predicted to expand modestly 1.5% this year. Additionally, trade tensions among major economies could further escalate, especially in the first half of the fourth quarter, in turn causing negative impacts on exports.

Prime Minister Nguyen Xuan Phuc at a meeting on August 28 said the government is targeting positive economic growth instead of setting a specific growth target.

High expectation from EVFTA

Despite the bleak outlook, there remain some spotlights in the Vietnamese economy. Tran Khanh Hien, deputy head of research at VNDirect Securities, said the industry and construction sector is less affected by the pandemic compared to the services one, and is expected to grow 6.6% year-on-year in the second half of 2020, a significant improvements from the 3% growth in the first six months.

Hien said this is partly due to the resumption of some global value chains after the reopening of major economies, as well as the Vietnamese government pushing for public investment.

In July, the disbursement rate in public services stood at VND45.7 trillion (US$1.97 billion), up 51.8% year-on-year, resulting in VND203 trillion (US$8.76 billion) in the seven-month period, equivalent to 42.7% of the year’s target and up 27.2% year-on-year.

The EU – Vietnam Free Trade Agreement (EVFTA), which came into effect since early August, is expected to be a new driving force for export growth in the final months of 2020.

Vice Minister of Industry and Trade Tran Quoc Khanh said the EVFTA not only boosts trade, but also helps Vietnam improve the economic growth quality.

Statistics revealed 26 out of the 27 EU members invested in Vietnam in the first five months with 2,040 projects worth over US$21 billion.

New stimulus packages under consideration

Vice Minister of Planning and Investment Tran Quoc Phuong said the ministry is collecting data to assess the Covid-19 impacts on the economy.

To further aid the business community, the government has requested provinces and cities to speed up the implementation of existing relief  programs, Phuong said.

At present, the Ministry of Planning and Investment is looking at an additional support program that would substantially help local firms and the people partly offset the negative Covid-19 impacts.

Minister of Planning and Investment Nguyen Chi Dung said the upcoming package would not only address the short-term issues, but also enhance long-term outlook in the form of promoting economic restructuring and laying the foundation for post-Covid-19 development.