14.09.2021, 11:44

Vietnam’s GDP Growth Rate Estimated to be in the Range of 5-5.5% if Vaccine Rollout Races Up, HSBC Says

Chief Executive Director, Tim Evans, today released HSBC’s predictions for Vietnam’s economy in 2021, in which there are two scenarios given. 

“There is a saying that it is always darkest before the dawn. Fundamentally this means, one should not give up during hard times because things are hardest right before they start to get better. As a bank that has been in Vietnam for 151 years, HSBC has been through ups and downs together with this country but HSBC also knows that Vietnam always finds a way to overcome obstacles and challenges. The national traits of perseverance and resilience will ensure this once again. Vietnam will prevail and the good times will return. We definitely believe this and despite this period of pain, we continue to have a positive outlook for the economy in the future”, Tim Evans wrote in the report. 

According to HSBC CEO, HSBC had high expectations for the economy this year after the strong performance in 2020 where Vietnam was one of the very few countries to evidence positive GDP growth as a result of a very effective handling of the pandemic. HSBC all believed that the Year of the Ox, would bring in the same attributes as the Ox itself - strong, reliable, fair and calm after the frenzied year of the Rat. 

The year started very strongly with exports showing very strong positive momentum on the back of an opening up of the economies in the West who had been under lockdown in 2020 and the benefits of the large number of Free Trade Agreements that Vietnam had signed started to bear fruit. The GDP growth forecast for the year from HSBC Global Research was 7.1% and there was renewed confidence across the economy that this was eminently achievable.

What no one had predicted was that the Covid virus would continue to mutate and mutate in a way that would make it far more virulent. Along came the Delta variant – a variant that spread so fast that it made it much harder to control. The impact of this variant as it spread across the country and in particular the economic heartland of Vietnam in the south, meant a swift re-introduction of lockdowns and travel restrictions. These in turn led to a decline in FDI into the country. FDI in registered capital declined 11.1% y-o-y in the first seven months of 2021 (a decline of 53.8% in July alone). 

However, on a more positive note, inflows of implemented capital were up 3.8% y-o-y in the January-July period. The majority of the investment continued to be in the processing and manufacturing sector followed by electricity production and distribution. 

Another impact of the lockdowns was that consumptiontook a significant hit. Retail sales fell by 19.8% in July, the most since April 2020. Car sales dropped with passenger vehicle sales declining by 15.9% y-o-y in June and commercial vehicle sales also dropped 1.8% y-o-y. 

The impact on the manufacturing sector intensified further in August and the ongoing restrictions lead to the temporary closure of certain businesses, while the social distancing measures and travel restrictions resulted in further declines in output, new orders, purchasing and ultimately employment. This in turn led to unprecedented supply-chain disruptions which were exacerbated by challenges around transportation and pressure on capacity at the country's ports. As a consequence, industrial production declined for the first time in five months, due to weaker manufacturing output.

The current challenges are predominantly in the footwear and garment sectors, as it is the southeast region that has been hardest hit by the Covid wave that is a major global manufacturing hub. Key global brands have seen challenges in their production, which is ultimately likely to affect Western consumers amid the holiday season. On a more positive note, mobile phone exports have stayed surprisingly resilient. This is due to the mobile phone assembly cluster being concentrated in the north, where operations have gradually returned to normal after being hit the hardest in May and June.

Unsurprisingly, the most recent August data reveals the pain that Vietnam’s economy is facing. The impact is significantly more severe than that during the 3-week national lockdown in April 2020. On the domestic front, private consumption saw a substantial hit, as mobility fell by as much as 60% on average from the pre-pandemic levels. This has resulted in a 40% year on year reduction in retail sales. The situation is even more acute in HCMC where peoples mobility fell close to 90%, leading to a 51% drop in retail sales on a year on year basis.

HSBC’s current forecast for 2021 GDP growth has been amended to 5.1% reflecting the severe impact of the fourth COVID-19 wave.

The only way to come out of this situation is through active vaccination and ensuring that the medical professionals have the resources to handle those who are most adversely impacted from a health perspective by the virus.

After a faltering start, Vietnam has been able to obtain significant volumes of vaccines despite supply constraints impacting the world as production struggles to keep up with demand. Through a mix of effective ordering, lobbying, donations etc. the vaccine rollout program has picked up pace with indications that the Covid hotspot of Ho Chi Minh City has achieved administration of the first dose to nearly 90% of the eligible population and a strong commitment to get a large majority of the population double vaccinated by the end of September.

The authorities are already talking about a gradual opening up of the economy and we forecast that this will start to gather pace from October onwards. The economic outlook by year end very much depends on the effectiveness of the vaccination rollout together with the effective and timely re-opening of the economy. However, HSBC would not expect that Vietnam return to a totally normalised environment in the near future and therefore considering these factors, we are considering two scenarios for Vietnam’s economy until year end:

Scenario 1: GDP growth in the range of 5-5.5%, depending on the speed and effectiveness of the vaccination rollout, the re-opening of the economy and the recovery and resumption of major export markets given the challenges posed by Delta variant.

Scenario 2: If the vaccination programme is not fast enough and lockdown and social distancing continue to be lengthened, there will be more adverse impact to the economy and there will be increased pressure on supply chains and GDP may only reach 3.5-4%.

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