The slow easing of anti-coronavirus containment rules in Western countries and nearly nonstop work at major factories in Vietnam gave the export-reliant South Asian nation a small yet elusive economic boost in the second quarter this year, analysts say.
The economy grew 0.36 percent from April to June compared to economic activity in the same months of 2019, Vietnam’s General Statistics Office announced Monday. The bulk of that came from manufacturing late in the quarter rather than services, economists believe.
European nations began easing business shutdowns in April and May. In mid-June, those countries opened borders to one another for travel. And U.S. states have allowed phased-in reopening of businesses since May despite continued rises in coronavirus cases.
Both trends allowed consumers to visit stores and buy goods that they had put off during the shutdowns, said Rajiv Biswas, Asia-Pacific chief economist with IHS Markit in Singapore. Electronic gear for remote communication is a particular draw for those consumers, he said.
Vietnam counts the United States as its biggest market, with 23.2 percent of all exports. The European Union takes 15.7 percent of Vietnamese exports.
“The lockdowns started to come off in May in Europe, and so that’s why I think we’re seeing that June is better,” Biswas said.
Export manufacturing drives Vietnam’s normally fast-growing, $262 billion economy. Foreign manufacturers like Vietnam for its low wages, support from government and proximity to raw materials in neighboring China. Vietnam has siphoned away some foreign investment from China since 2018 because of U.S. tariffs imposed on Chinese exports during a two-way trade dispute.
Vietnam’s economic future “really depends on the world economy,” said Jack Nguyen, partner in the business advisory firm Mazars in Ho Chi Minh City. “Vietnam is now so linked to the world that how other countries are opening up will indicate how big Vietnam will be (in) improvement.”
The operation of major foreign-invested factories in Vietnam supports economic growth, said Ralf Matthaes, founder of the Infocus Mekong Research consultancy in Ho Chi Minh City.
“If you go like Samsung, Panasonic, the big guys, if they’re opened up again it would be a huge spike,” he said. Both foreign electronics firms and many others have cautiously operated their factories year to date. Vietnam’s relatively low coronavirus caseload of just 355 people with no deaths allows work to go on with few risks.
In China and India, two other Asian manufacturing powerhouses, governments ordered factory closures at the height over their virus outbreaks.
Domestic consumption further helped strengthen Vietnam’s economy in the second quarter, though people on the ground report that small stores have gone out of business. A lack of foreign tourists due to Vietnam’s ban on most arrivals is hurting hotels and airlines. The ban has left some foreign factory heads stuck in other countries, Matthaes said.
The International Monetary Fund forecasts Vietnam to grow faster than any other Asian country with full-year GDP growth of 2.7 percent. The IMF expects Bangladesh, China, India, Myanmar and Nepal to grow as well but by smaller percentages.
Vietnam's second half of 2020 is widely expected to beat the first half. A free trade deal with the European Union will cut tariffs when it takes effect August 1. Spending before the Western year-end holidays should help too, Biswas said.
“Vietnam is going to be one of the best performing Asia Pacific countries,” he said. “Vietnam won’t have a recession this year. It will be one of the only countries in Asia.”