Vietnam’s economy gradually regains growth momentum

Although Vietnam’s economic growth in Q2 2020 hit a record low in nearly 30 years due to the serious impact of the COVID-19 pandemic, domestic production and business activities have continued to be maintained, gradually bringing the economy back to its normal state once the disease was put under control.

Workers of the 8/3 Textile Company Limited operating fibre production lines. (Photo: NDO/Quang Minh)
Workers of the 8/3 Textile Company Limited operating fibre production lines. (Photo: NDO/Quang Minh)

Growth no longer negative

According to socio-economic data released by the General Statistics Office (GSO) at a recent online press briefing, Vietnam’s gross domestic product (GDP) in the first half of 2020 is estimated to have grown by 1.81% over the same period last year, the lowest level in the past decade. Regarding Q2 alone, the economy did not fall into negative growth but GDP only expanded by 0.36% year-on-year, the lowest in nearly 30 years and falling below the lowest scenario forecast by the GSO. Deputy Director General of GSO Nguyen Thi Huong said that in the context of the COVID-19 outbreak seriously affecting countries around the world, the Vietnamese economy still achieving a relative growth rate is an encouraging result. The main drivers of economic growth remained the manufacturing industry and market service sectors. Affected by COVID019, industrial production reached the lowest year-on-year increase in the past 10 years. However, thanks to the early control of the pandemic, all areas of the economy have gradually resumed their normal operations, leading industrial production to rebound and gradually regain its high growth momentum since May.

Notably, two months after the easing and removal of social distancing measures, socio-economic activities have gradually been revived. The number of newly established enterprises in June reached 13,700, up 27.9% over the previous month. In addition, the survey of manufacturing firms’ business trends showed that enterprises expect the production and business situation in Q3 to be more positive. Despite facing numerous difficulties due to the negative impact of COVID-19, activities in banking, insurance and security are also delivering positive signs from the recovery of the domestic macro-economy. Disbursement of social investment capital in the half of the year increased by 3.4% over the same period in 2019, while the growth rates of disbursed capital from the state budget in June and the six-month period both reached their highest levels in the 2016-2020 period. This is a positive signal reflecting the results of the Government’s drastic implementation of measures to promote the disbursement of public investment. State budget revenue and spending in the first 15 days of June performed positively thanks to the effective COVID-19 control as well as the economy’s production and business activities gradually returning to normal in June.

A more positive outlook promised for second half of the year

Director of the GSO’s System of National Accounts Duong Manh Hung stated that the economic outlook in the second half of the year will be better than that in the first half, reflected through three aspects. Firstly, room for public investment disbursement remains large. If 100% of the public investment that has been allocated for the whole year is disbursed, Vietnam’s GDP in 2020 will increase by 0.42 percentage points. At the same time, public investment will mainly flow into infrastructure, creating seed funding for other capital flows and production values. Secondly, the growth of outstanding loan balance currently reaches only 2.45%, compared to the yearly target of 13-14%, indicating huge room left for growth in the remaining two quarters. Thirdly, the GSO’s business trend survey revealed that more than 80% of enterprises expect the business situation in Q3 to be more stable or better than previously, while only 19.4% predict greater difficulties. However, Hung said the growth target of 6.8% is an extremely difficult task, even an impossible one, in the context of the pandemic still taking place complicatedly and disrupting global supply chains, explaining that to achieve the goal, the Q3 and Q4 growth rates must be above 10%.

Regarding inflation, the GSO reported that the average consumer price index (CPI) in the January-June period increased by 4.19% over the same period in 2019 which was the highest level in the past five years. The average six-month core inflation also rose by 2.81% year-on-year. In particular, rising pork prices accounted for nearly two-thirds of the CPI growth. However, inflation has been on a declining trend since the beginning of the year, and the goal of controlling inflation at 4% for the whole year remains feasible if the Government focuses on drastically and synchronously implementing solutions to cope with African swine fever and prevent new outbreaks, while encouraging large-scale pig farming establishments to accelerate the progress and increase the scale of reproduction to serve domestic consumption and reduce pork prices, thus contributing to controlling inflation.

Deputy Director General of the GSO Nguyen Thi Huong emphasised that despite basically being brought under control in Vietnam, COVID-19 is still proceeding complicatedly around the world, negatively affecting economic sectors, putting pressure on the goal of controlling inflation, and influencing social security due to rising unemployment. To promote growth, the Government should continue to take drastic measures to contain the pandemic, preventing it from spreading and ensuring people’s health and safety, as well as taking the initiative in preventing a possible second COVID-19 wave in the near future. Regarding management solutions, the GSO recommends the Government carry on with procedure reform so that enterprises can access support policies in a simple, convenient and timely manner. Adequate attention must also be paid to speeding up the disbursement of public investment in 2020 and removing difficulties for slowly-disbursed projects, especially key, large-scale and influential projects, in order to implement strategic breakthroughs in infrastructure and improve the economy’s production capacity.

In addition, it is necessary to stimulate investments among enterprises manufacturing products for exports to prepare available goods supplies when the markets of other countries reopen their door as normal, and utilise opportunities from the EU-Vietnam Free Trade Agreement (EVFTA) which is set to take effect from August 2020. The Government should run monetary policies with flexible interest and exchange rates, in accordance with domestic and international market developments, and in harmony with fiscal policies and other macroeconomic policies, in order to control inflation, support production and business, and promote economic growth. Furthermore, the Government needs to closely monitor the weather situation and take proactive measures to cope with natural disasters and raise warnings about floods, landslides and the impacts of drought and saltwater intrusion, aiming to minimise damage to production and people’s lives.