While the impact of the coronavirus outbreak in Vietnam has been less severe than in other economies in Asia, the situation can worsen as the coronavirus spreads more widely within the country and its economy will likely face unprecedented challenges, Moody’s Investors Service has said.

Vietnam is heavily dependent on external trade

While domestic transmission of the coronavirus remains relatively limited for now, companies in Vietnam are confronted by both supply and demand shocks as economic activity in their major trading partners slows, the US-based rating agency said in a note sent to Hanoitimes.

The impact on tourism will intensify as the Vietnamese government has barred entry of all foreign nationals, while domestic consumption is also waning as residents are restricted from leaving their homes. The unemployment rate is likely to rise, further depressing domestic consumption. Credit demand in 2020 will be weak as potential borrowers turn cautious to ride out economic challenges.

The magnitude of the impact of the coronavirus outbreak will depend on the length of disruptions, which is hard to predict, Moody’s noted.

According to government data, Vietnam’s GDP expanded by an estimated 3.82% in the first quarter this year, the slowest pace over the past decade as the Covid-19 pandemic has taken heavy toll on all sectors.

The pandemic has prompted Fitch Solutions to lower its forecasts for Vietnam’s 2020 real GDP growth to 2.8% from 6.3% previously.

In its latest report, the World Bank has also revised down Vietnam’s GDP growth for 2020 from 6.5% to 4.9%. This rate, however, is still the highest among East Asia and Pacific economies. If the pandemic persists, Vietnam’s growth could slow to 1.5%.

Source: WB's “East Asia and the Pacific in the time of Covid-19" report.