The pandemic and a positive outlook

22-Sep-2020 Intellasia | Vietnamnet | 6:02 AM Print This Post

Nations have closed borders, economies are isolated, and supply chains are fragmented. And Vietnam’s economy is no exception.

Worst scenario in 30 years

Minister of Planning and Investment Nguyen Chi Dung has an economic plan that he did not want. That is the scenario for economic growth of only 1.69 2.12 percent for 2020, much lower than the target of 6.8 percent set by the National Assembly.

For this scenario, which was presented at the last National Assembly session, the government did not ask for an adjustment to the GDP growth target and this shows how worrying the economy in this Covid-19 year has been.

“While many countries in the region and around the world anticipate negative growth, we have positive growth, which is a huge effort,” he said.

But the growth rate of around 2 percent is the lowest in more than 30 years, threatening the economic and social achievements that the country has made.

The indexes recorded after 8 months of the Covid-19 pandemic show clearly that the government, businesses and people are being affected by a very deep economic downturn.

In June, the country recorded 31 million people losing their jobs, or parts of their job or having their income fall a very large number compared with total 55 million jobs. Fortunately, after more than 2 months, the social pressure is not too stressful and only shows through quiet streets and deserted shops… Perhaps, many people are returning to the countryside, which is the shock absorber every time there is a crisis.

According to statistics, total retail sales of consumer goods and services in 8 months decreased by 4.5 percent over the same period (up 9.5%) if the price factor was excluded. In an economy where 75 percent of the population is under 35 like in Vietnam, where consumption always increases by 10 percent on average per year, this decline is worrying.

There are many other concerning data in 8 months. The industrial production index increased by 2.2%, the lowest increase in many years; State budget revenue reduced by 12.4 percent over the same period; power consumption growth was only 2%, much lower than the average of 8-9 percent annually; and credit growth was more than 4%, half of the same period of last year.

A record number of dying businesses

In particular, there were a total of 103,424 enterprises leaving the market, waiting for dissolution and completing dissolution procedures, much higher than the number of 88,651 newly established enterprises.

The General Statistical Office’s 8-month data shows that most of the indexes still have positive growth but at a record low level, showing the stagnant economy. The Asian Development Bank (ADB)’s country director in Vietnam, Andrew Jeffries, said: “Declining domestic consumption and weakening global demand due to Covid-19 has affected the Vietnamese economy more than expected.” ADB forecasts that the Vietnamese economy will grow 1.8 percent in 2020.

According to the report on the impact of the Covid-19 outbreak made by the Private Economic Development Research Board of the Administrative Procedure Reform Advisory Council, to the prime minister, 20 percent of enterprises said that they had to stop operating, 76 percent of businesses could not balance their revenues and expenditures, and 2 percent of businesses were dissolved, and only 2 percent of businesses were temporarily unaffected by the pandemic.

Of the 76 percent of enterprises that could not balance their revenues and expenditures, 54 percent said that their cash inflow met less than 50 percent of costs. Only 7 percent said that the cash inflow met over 75 percent of the costs. Therefore, the balance of cash flow and cost is the biggest problem of businesses.

Due to the difficult situation, 47 percent of enterprises had to reduce the number of employees. The rate of enterprises cutting more than 50 percent of labour accounted for 33 percent of the respondents. Those working in the tourism industry were most affected, followed by agriculture, plastic, information technology…

A study by the International Labour Organisation (ILO) and the ADB predicts that 548,000 young Vietnamese workers will lose their jobs if the pandemic continues and this number will be 370,000 even when the pandemic is effectively controlled.

The difficulties of businesses cannot be underestimated.

Worse than expected

The ADB said: “Vietnam’s economic outlook in the near future will face many difficulties, in the context of the global economic recession and the domestic slowdown is worse than expected.”

For its part, as the government’s advisory body in development plans, the Ministry of Planning and Investment shares the above point of view, saying that in the last months of 2020, if Vietnam cannot build and carry out drastic solutions, it will be very difficult to ensure positive growth. “Only when there are strong solutions in terms of fiscal, monetary and social security, there will be the ability to strive for economic growth of about 2%,” the ministry said.

However, according to ADB, Vietnam is showing a stronger resilience than most similar economies, and the medium to long-term outlook remains positive. Economic foundations remain not undermined, and Vietnam has the potential to benefit from current global trade, investment and production trends.

Minister Nguyen Chi Dung still hopes for a recovery next year with an expected growth of about 6.7%. This ministry is working on a number of ideas for a “second aid package” with a dose that is large and strong enough, with multiple targets, not just economic stimulus. The scope of this package is not only to support small and medium-sized enterprises, which employ a lot of workers to maintain production and business, and encourage the return of operations, avoiding further cuts in the number of workers, but also to support large businesses that face difficulties due to shortages in cash flow when revenue is severely reduced and fixed, and operating costs are large.

Medium and long term prospects remain positive

According to Dung, there are still positive bright spots to set the premise for development.

That is, the macroeconomy in the eight months of 2020 basically remained stable, major financial, monetary and credit balances were basically maintained; the amount of foreign currency reserves was plentiful, timely and fully satisfying the legal foreign currency demand; systematic liquidity was guaranteed. Deposit and lending interest rates for VND at credit institutions decreased in short, medium and long term. The consumer price index was kept stable, rising 3.96 percent for 8 months compared to the same period last year. Balanced central budget and local budgets were guaranteed.

For his part, Andrew Jeffries said that it is a foundation for development. “Vietnam is showing a stronger resilience than most similar economies, and the medium and long-term outlook remains positive. The economic foundations have yet to decline, and Vietnam has the potential to benefit from current global trade, investment and production trends,” he said.

The year of the Covid-19 pandemic was the most difficult and the most challenging, but it also helped reveal many structural weaknesses of Vietnam’s transition economy.


Category: Business, Vietnam

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