According to World Bank’s economic update for Vietnam ‘’Taking Stock”, Vietnam is projected to grow by almost 3 percent in 2020 while the world economy is projected to decline at least by 4 percent due to the tidal wave of the pandemic.
Vietnam’s positive economic performance is the result of both its domestic economy and the external sector. The pandemic containment played a vital part in economic growth, however, it is the decisive and timely fiscal and monetary policies that acted as a lifesaver for the private sector to start the recovery. For instance, public expenditure started to take off again after three years of fiscal consolidation. The payout of the public investment program increased 40 percent in the first nine months of 2020.
One of the main drivers of economic growth – the external sector – has seen an exceptional performance since the beginning of the pandemic. Vietnam is about to report not only its record-high merchandise trade surplus but also its robust international reserves. The losses in foreign exchange revenues from declined tourism activities and falling remittances were far from offset by the continued inflows of FDI and the constant increase in merchandise exports. The report points out that foreign investors have high business confidence in Vietnam’s climate thanks to the country’s good containment of the pandemic.
The containment of the pandemic as a competitive advantage for Vietnam
As the COVID-19 crisis is assumed to be brought under control gradually, especially through the introduction of the vaccine, Vietnam’s economy is expected to grow by 6.8 percent in 2021. Despite a positive economic outlook, Vietnam may face fiscal, financial, and social risks that require more attention from the authorities. If the risks are successfully addressed, Vietnam can rise even stronger than before the crisis. Until now, the outstanding containment of the pandemic has already allowed the country to establish a competitive advantage over many competitors. Notably, Vietnam has extended its appearance in the world economy by attracting a bigger share of foreign direct investment.
Apart from the projected inflows of FDI, Vietnam will still rely on the world economy to reclaim its potential growth trajectory. The recovery of international tourism and labor-intensive manufacturing exports will be significant for Vietnam’s GDP growth. Given the unpredictability of COVID-19, tourism recovery is difficult to analyze, but once borders reopen, the industry is likely to resume within the ASEAN. Thanks to the country’s successful containment of the pandemic so far, Vietnam would be well-positioned to attract international tourists, as long as the virus is under control.
Positive prospect for the labor market and other sectors
Regarding Vietnam’s labor market, despite a positive rise in line with the recovery stage in the third quarter of 2020, the number was still below pre-pandemic levels. The statistics from General Statistics Office (GSO) showed that the COVID-19 pandemic may have caused 1.6 million job losses in the market. The pandemic led to a change in the seasonal pattern of the labor force across 2020. Many people were pulled into unemployment due to COVID-19, while others had to choose informal work as a last resort. The number of workers having informal jobs in the last quarter of 2020 was 20.9 million, making the rate of informal workers jump to 56.2 percent. With those negative impacts, COVID-19 has positioned Vietnam’s labor force into active yet moderate recovery.
In 2021, once the demand returns, a positive prospect for manufacturers is foreseeable. As a crucial component for Vietnam’s growth, the manufacturing sector has led Vietnam to achieve one of the highest trade-over-GDP ratios in Southeast Asia. Therefore, decisive steps have been taken to keep operations going despite the lockdowns in other countries. Engineers from the two largest international electronics manufacturers were allowed to enter Vietnam early this year to ensure the full running capacity of the factories. The government has also worked with local businesses to increase the production of personal protective equipment (PPE) to help essential workers access worldwide markets.
The recovery signs also sparked in the food, clothing, and household sector, following Vietnam’s easing of COVID-19 restrictions. The Consumer Price Index (CPI) for food and delivery services in March 2020 fell by 0.43 percent in early 2020, however, bounced back 0.66 percent in April and 0.34 percent in May. A rising trend has also been seen in shopping for clothes, home appliances, and furniture. It is noteworthy that Vietnam was the second most optimistic country globally with a Consumer Confidence Index of 117 points in the second quarter of 2020, according to the latest report by Nielsen Vietnam. This is a good sign for businesses in Vietnam in the context of greater pessimism among consumers globally (56 out of 68 markets reported confidence levels under 100).
Consumer Confidence in Vietnam
Despite the negative impacts of COVID-19, it is undeniable that Vietnam’s economy was resilient and somewhat successfully weather the pandemic storm. Due to the uncertain nature of the crisis, it is too soon to conclude that Vietnam’s economy would be able to consistently keep its impressive records, however, its positive recovery is undeniable and comprehensible.