Vietnamese officials have lowered expectations for their country’s normally fast-growing gross domestic product in 2020 as the global economic slowdown thins demand for exports and stalls international tourism.
The $260 billion economy has expanded at 6% or more per year since 2012 because of a boom in manufactured exports will grow at just 2% this year, according to an official target released this month. That’s down from an earlier target of 2.5%. The Asian Development Bank estimates just 1.8% growth.
Measures taken around the world to contain the spread of COVID-19 have reduced orders to the Vietnamese factories that crank out shoes, garments and furniture, analysts say.
Stay-home rules in Western countries are keeping shoppers away from physical stores, while business closures in those countries have left people out of work and less likely to buy nonessential goods.
“The rule is that those light industrial goods are weak, the exports orders are down and there’s reports of a lot of unemployment in the factory sector in the [Vietnamese] provinces,” said Frederick Burke, Ho Chi Minh City-based partner with the law firm Baker McKenzie.
The headaches of 2020 challenge Vietnam to keep its reputation as a manufacturing go-to spot in Asia as rising costs complicate factory work in China and other Southeast Asian countries lack infrastructure.
Many plants faltering
Factories that make electronics, such as Samsung’s smartphones, still get orders from retailers that sell abroad to people working or studying at home. However, the vast number of plants that make less value-added goods are faltering, Burke said.
A Vietnam factory operated by Taiwan-based Pou Chen Group, which makes footwear for some of the world’s top brands, for example, laid off 150 workers earlier this year, the nonprofit Business & Human Rights Resource Centre says.
Vietnam’s border closure, a measure to throttle the coronavirus spread, is stopping investors from making trips that would help them expand. They would normally travel to Vietnam from Japan, Singapore, South Korea and Taiwan to scope out new manufacturing sites. Their factories in turn create jobs, fostering a young middle class.
Tourism has also been badly affected by the restrictions on travel said Jack Nguyen, partner in the business advisory firm Mazars in Ho Chi Minh City. International tourism is “dead,” Nguyen said. Inbound tourism usually makes up 6% of the economy.
“Things will only pick up only when the borders are open and there’s no quarantine requirements,” Nguyen said. “Who knows when that’s going to be.”
A mid-year COVID-19 outbreak in the coastal resort city Danang followed by the start of the school year has reduced domestic travel, analysts say. Some of the country’s hotels are up for sale as a result, Nguyen said.
Recovery could take 4 years
Vietnam’s government is targeting GDP growth next year of 6% to 6.5%, figures that experts say would reflect a near-normal year compared to the low GDP base of 2020 rather than an explosion of new activity.
The Ministry of Planning and Investment warned this month the global post-pandemic recovery could take as long as four years, according to a research note from the brokerage SSI in Hanoi. The ministry set a 2021 growth target of 6% to 6.5%, down from an earlier goal of 7%.
Foreign investors in the country aren't pulling out, however. They take a long-term view that Vietnam’s underlying strengths will outlive COVID-19, Burke said. Vietnam reports just 1,069 coronavirus cases overall.
Vietnam’s government “has proven to the world thus far that it can protect its borders from the invasion of a pandemic and create a desirable atmosphere for investment, something that most other Asian nations cannot boast,” said Ralf Matthaes, founder of the Infocus Mekong Research consultancy in Ho Chi Minh City.
Everyone in Vietnam is watching for whether the rest of the world can control disease caseloads to the point that consumers start spending as they did before and international travel comes back, economist say.
“It’s a case of the global economy, regional economy on stable footing post-pandemic, adjusting to the new normal, whatever that means,” said Song Seng Wun, economist in the private banking unit of CIMB, a Malaysian bank, in Singapore.