Amid a protracted Covid-19 outbreak, Vietnam faced challenges in restarting the economy after a prolonged lockdown, but October high-frequency data suggest the contraction has bottomed out and strengthening of growth in coming months, according to a World Bank’s latest report.

Electronic production at Katolec Vietnam at Quang Minh Industrial Park, Me Linh District, Hanoi. Photo: Pham Hung

The move came following Ho Chi Minh City and other provinces in the South progressively lifted restrictions in October, in turn resulting in the bouncing back of major mobility indicators and resumption of economic activities.

“The recovery was particularly strong in grocery and pharmacy, reverting close to pre-pandemic levels,” noted the report. By contrast, mobility in workplaces rebounded at a slower pace than typically observed in previous outbreak episodes.

This workplace mobility trend largely reflects the developments in provinces in the southern region, which only eased mobility restrictions progressively in October, and have been affected by difficulties in resuming full production related to input and labor shortage.

Meanwhile, the Industrial production index rebounded by 6.9% in October, closing in on the level a year ago. This rebound was largely driven by the resumption of production activities in Ho Chi Minh City and its surrounding industrial hubs, stated the World Bank.

The most dynamic subsectors included food, beverage, tobacco, garment and footwear, rubber and plastic products, metals, and furniture, which registered double-digit month-on-month growth rates.

The manufacturing PMI jumped from 40.2 in September to 52.1 in October, exceeding the 50.0 no-change benchmarks for the first time in five months, indicating significant improvement in economic conditions.

Retail sales growth accelerated from 4.4% month-on-month in September to 18.1% in October thanks to the easing of social distancing measures. However, they remained 19.5% lower than a year ago.

Sales of services, which were affected more severely by the fourth outbreak, continued to recover at a faster pace than sales of goods. They grew by 44.1%   and 14.5% month-on-month in October, respectively. Nevertheless, both have yet to attain the levels achieved last October, noted the World Bank.

The trade surplus reached US$2.85 billion in October as merchandise exports increased by 5.7% year-on-year while import growth moderated to 6.9% from 10.2% in September.

FDI commitment fell by 47.4% month-on-month in October after three months of strong recovery.

“This reversal likely reflects the seasonality and chunkiness of FDI,” added the World Bank.

 In total, the country attracted $23.7 billion worth of committed FDI in the first ten months of 2021, 1.1% higher than the same period of 2020, while inflation remained subdued despite fuel price hikes.

Credit to the economy grew by 14.2% year-on-year in October, comparable to the rate in September. This reflected the ongoing recovery of economic activities from the fourth outbreak, particularly in the services sectors.

Indeed, the growth of credit to the services sector, which accounted for over 60 percent of total credit to the economy, settled at 15.6% year-on-year in October after a steady slow down from 18.3% in May.

Credit to industry and construction has remained flat at about 12.7% year-on-year since July 2021 but still exceeds the pre-pandemic rates. With recovering credit demand, overnight interbank interest rates leveled off at an average of 0.65%, the same as in September, bringing the falling trend that started in July 2021 to a halt.

According to the World Bank, fiscal policy interventions would help, including tax relief, acceleration of investment project implementation, and social assistance to the needy. In this light, the approved VAT reduction for businesses in traveling, hospitality, and entertainment in November and December of 2021 is expected to help to boost weak domestic demand in this subsector.

As the economy re-opens and the number of new confirmed cases is increasing, the continued rapid pace of vaccination and vigilance in testing and quarantining should help avoid a new wave of infections forcing new restrictive measures to protect lives.

“Inflation should also be carefully watched as strengthening domestic demand amid rising energy prices around the world may create upward pressure on prices,” noted the World Bank, adding financial sector health should also be closely monitored.