Strong impact on economy
After two months, the Covid-19 epidemic has dealt a strong blow to the Chinese economy, and given its importance to the global economy, such an impact has produced knock-on effects on many countries. China is currently the world’s second largest economy with an estimated GDP of US$14,300. As a manufacturing hub and a fast-growing domestic market with 1.4 billion people, China has attracted thousands of firms to open their factories, making China a crucial centre of the global supply chain.
Since the onset of the Covid-19 epidemic, most Chinese industries have been closed. With China’s significant role, the world’s economy is apparently facing tremendous difficulties, and the situation is not expected to improve anytime soon, at least until when the epidemic is completely contained and economic activities fully resume.
A Reuters poll of economists in early February shows that the Chinese economy is forecast to slow to 4.5% in the first quarter of 2020, down 1.5 percentage points from the previous quarter. Trade, tourism, transport and entertainment activities have also been severely hit. Global aviation revenues are expected to drop by US$5 billion in the first three months of 2020, according to a report by the International Civil Aviation Organisation. With Chinese GDP accounting for 18% of the global economy, if the epidemic is not stemmed by the end of summer, global GDP could be slashed by 1% compared with the scenario prior to the outbreak.
In 2019, Vietnam’s trade with China reached nearly US$117 billion, accounting for 23% of its total trade. Vietnam also depends on China’s global supply chain for input materials and products for a number of manufacturing industries. China is also the top source of foreign tourists to Vietnam at about 30%. There are also more than 600 flights a week between Vietnamese and Chinese destinations. Furthermore, many other sectors are also indirectly affected such as agriculture, domestic trade, investment, labour and education.
The above-mentioned factors will inevitably hurt economic growth, government revenues, demand for money and consumer prices. In January, the consumer price index increased 1.23% against the previous month and 6.34% over the same month last year due to higher consumer and travel demand during the Lunar New Year holiday, raising concerns over whether inflation can be curbed. But due to the Covid-19 epidemic, the demand for restaurant services and travel has all fallen. As a result, consumer prices in February are expected not to increase by a large margin, or might even drop compared to January. And inflation for all of 2020 is likely be curbed at below 4%.
Striving to realise targets
The recovery of Covid-19 patients in Vietnam shows that Vietnam has been doing well to prevent the spread of the disease. The people are promptly provided with transparent information so that they can take measures to protect themselves while bold measures have been taken to quarantine suspected cases so as to prevent the spread of Covid-19. Vietnam’s initial success in containing Covid-19 has boosted the confidence that the country can overcome the difficulties and challenges arising from the disease.
The government has decided to keep the GDP growth target for 2020 unchanged at 6.8% and constructed various scenarios to mitigate the negative impacts of Covid-19 while coming up with measures to compensate the economic losses caused by the epidemic. Beside Covid-19, Vietnam is also facing other challenges from the US-China trade war, internal weaknesses, bird flu outbreaks in several provinces and droughts in the Mekong Delta.
But if Vietnam can take advantage of positive factors, there is still large room for growth. Free trade agreements, recently the EVFTA, and the diversification of tourism, aviation and supply chain markets, are expected to boost domestic demand and increase Vietnamese exports.
From now until the end of the year, public and private investment will play a significant role. It is necessary to accelerate the disbursement of public investment in large projects so that it will produce a major effect on the economy. It is also necessary to tap into the enormous strength of the private sector in these projects under public-private partnerships. At the same time, measures are needed to support businesses hit by Covid-19 such as reducing tax, extending debt repayment dates and lowering interest rates. If Vietnam can find the solutions to these difficulties, it is highly likely that Vietnam will be able realise the socio-economic targets for 2020.