Vietnam’s Economic Contraction Bottomed Out, Experts Say
Amid a protracted COVID-19 outbreak, Vietnam faced challenges in restarting the economy after a prolonged lockdown, but October high frequency data suggest the contraction has bottomed out.
• Industrial production and retail sales rebounded as economic activities progressively resumed but have yet to recover to the levels observed before the April 2021 outbreak.
• The merchandise trade balance posted a second month of surplus as import growth continued to slow. Meanwhile, FDI commitment fell after three months of increase.
• Despite rising fuel prices, inflation remained subdued due to softening food prices and weak domestic demand for non-food products.
• Credit growth stabilized in October and overnight interbank interest rate levelled off after a fourmonth decline.
• The October budget balance returned to surplus in October mainly driven by a sharp fall in expenditures although revenues continued to decrease for the third month. The year-to-date budget was also in surplus, signaling a continued contractionary fiscal policy that is not supporting aggregate demand during recovery.
• As the economy re-opens and recovers, three main avenues for action remain critical. First, on the health front, continued rapid vaccination and vigilance with testing and quarantining will be critical as infection numbers are expected to rise with increased mobility and interactions. Second, more proactive fiscal policy would support economic recovery.
The approved value-added tax (VAT) reduction for businesses in travelling, hospitality and entertainment in November and December of 2021 are expected to help boost domestic demand, which have been severely depressed. Accelerating disbursement of capital investments can support aggregate demand while increased social assistance can support private demand. Finally, the authorities should continue paying close attention to the health ofthe financial sector.
The number of new COVID-19 infections ticked up in late October as the economy started opening up. While the number of new deaths continued to fall, the numbers of new confirmed COVID-19 cases increased in the second half of October, reversing the rapidly declining trend started in early September. The vaccination program was further accelerated, with over one million doses administered per day.
As of 7 November, all-time infection cases reached 970,000, the death toll reached 22,500 and about 60.5 percent of population had received at least one dose of COVID-19 vaccines.
As Ho Chi Minh City and other provinces in the South progressively lifted restrictions in October, major mobility indicators bounced back, and economic activities resumed. The recovery was particularly strong in grocery and pharmacy, reverting close to pre-pandemic levels. By contrast, mobility in workplaces rebounded at a slower pace than typically observed in previous outbreak episodes. This workplace mobility trend largely reflects the developments in provinces in the southern region, which only eased mobility restrictions progressively in October, and have been affected by difficulties in resuming full production related to input and labor shortage.
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