New Curbs Dim Vietnam’s Economic Recovery  | Vietcetera
Billboard banner
Jul 13, 2021

New Curbs Dim Vietnam’s Economic Recovery 

With the fourth and worst wave currently crippling some southern cities, it’s becoming harder and harder for Vietnam to bounce back like how it did the past year.

New Curbs Dim Vietnam’s Economic Recovery 

Like the uneven impact of the coronavirus pandemic itself, the pace of economic recovery is massively unbalanced. | Source: Vietcetera

Some parts of the world are beginning to return to their pre-pandemic states. 

Just this month, Thailand has welcomed vaccinated tourists to Phuket. There were a lot of qualms, but it was a necessary leap towards the country’s tourism and economic recovery. In the coming months, more cities in the Land of Smiles will be reopened. Hong Kong and Singapore have also opened their borders to other low-risk countries. 

However, like the uneven impact of the coronavirus pandemic itself, the pace of economic recovery is massively unbalanced.

There are two main factors that support the speed of a country’s economic recovery from the pandemic: one is the strength of its COVID-19 policy response; and two is the success of its vaccination program.

As could be expected, the UK and the US, with the highest projected growth rates among advanced economies – 7.2% and 6.9%, respectively – top the league tables for size of pandemic response policy packages and share of the population successfully vaccinated.

Vietnam, while lauded internationally for containing the virus through targeted mass testing, centralized quarantines, and the overall COVID-19 policy response, is unable to build the other pillar to achieve economic recovery — vaccination program. With the fourth and worst wave currently crippling the southern cities of Ho Chi Minh City, Vung Tau and Dong Thap, it’s becoming harder and harder for the country to bounce back like how it did the past year.

As of July 12, around four million of the country’s 98 million people have got shots, with 271,409 of them getting both doses. Vietnam’s Ministry of Health targets vaccinating 70% of the population by April 2022.

Although slower than the other Asian countries, Vietnam has made progress to accelerate vaccine procurement. So far, the country’s Ministry of Health has approved the AstraZeneca vaccine, Russia's Sputnik V, China's Sinopharm vaccine, Moderna and the Pfizer/BioNTech vaccine. Vietnam is also getting support from Japan, China, the US and Russia, as well as through the COVAX facility. 

Growth forecast slashed

According to the latest report by HSBC, one of the largest banking and financial services institutions in the world, Vietnam’s economic recovery remains favorable despite the worst COVID-19 wave since the start of the pandemic, given numerous tailwinds, such as growing FDI inflows and an extended global tech upswing. 

Still, HSBC slashed its 2021 growth forecast for Vietnam from 6.6% to 6.1%, reflecting the impact of the present outbreak and lockdown.

The country’s services sector has been hit the hardest — its contribution to growth dropped from pre-pandemic 45% to ~20% in Q2 of 2021. In the same unfortunate way, the tourism and travel sectors remain in the balance. Some are even having it worse, hotel owners in tourism hotspot Nha Trang are putting up their properties for sale on realty forums. 

As a result of stricter social distancing measures, border restrictions have been swiftly tightened, air traffic has seen a notable impact, with flights in Hanoi airport down 50% in Q1.

In addition, the country’s domestic demand, especially in May and June, saw two consecutive declines in year-on-year terms. “This reflects a much larger magnitude of this outbreak than during the previous two waves. After all, Vietnam’s mobility fell as much as 30% below the pre-pandemic level, the second-largest decline in ASEAN,” reads the HSBC report.

The labor market wasn’t left unharmed; the unemployment rate ticked up from 2.4% in Q1 to 2.6% in Q2, with the total number of jobs shrinking 65,000 quarter-on-quarter or 9% below the pre-pandemic level.

But there’s always a silver lining. Exports soared a 33% increase year-on-year in Q2 — proving Vietnam’s external sectors remain surprisingly resilient and still reaping the benefits of elevated demand for pandemic-related products, including electronics and machinery. 

According to the Ministry of Industry and Trade, the demand from all over the world is recovering which means there’s an opportunity for Vietnam to boost its exports of consumer and industrial products. The MIT added that the country’s s foreign trade will remain robust as free trade agreements are gradually implemented in a more comprehensive and effective manner. 

Foreign Direct Investment also provides significant improvement, defying the serious threats of the present outbreak. In fact, the new FDI rose 13% year-on-year in the first half of 2021, while FDI disbursement grew almost 7%.

As for the inflation, HSBC anticipated the rate to average 2.8% this year, providing flexibility for the central bank to remain on hold in 2021.

“That said, once Vietnam is able to contain COVID-19, it should regain its momentum quickly,” the report emphasized.

Vietnam Airlines announced that it will resume direct flights between Hanoi and Ho Chi Minh City to various parts of Asia, Europe, and Oceania from July through October. | Source: Vietcetera

Aviation industry expected to recover in H2

The global pandemic has had a devastating impact on the aviation industry as nearly all air travel came to a halt. And it will take time for the number of flights to pick up soon.

However in Vietnam, the aviation industry is expected to recover in the second half of this year, fueled by the successful vaccination campaigns of its inbound markets.

In fact, according to Head of the Civil Aviation Authority of Vietnam (CAAV) Dinh Viet Thang, many of the country’s key aviation markets such as Northeast Asia and Europe will soon achieve herd immunity that largely supports the gradual reopening of international flights at the end of the third quarter or the fourth quarter of 2021.

Just recently, Vietnam Airlines announced that it will resume direct flights between Hanoi and Ho Chi Minh City to various parts of Asia, Europe, and Oceania from July through October. 

The national flag carrier plans to go on with the Hanoi-Tokyo flights from July 17 to October 30; the Ho Chi Minh City-Bangkok, and the Tokyo-Ho Chi Minh City between August 1 and September 3. As well as the Hanoi-Frankfurt on July 25-28 and August 21; the Hanoi-London on August 13 and September 2.

The Ho Chi Minh City-Sydney flights are scheduled from July 15 to October 30 and the Ho Chi Minh City-Melbourne from July 20 to October 30.

To support the international flights, Vietnam Airlines will pilot the application of the International Air Transport Association (IATA) Travel Pass, a digital travel mobile app providing passengers with COVID-19 testing results and vaccination status.

Just like in other sectors, it will require a long-term roadmap for the aviation industry to pull through. Vietnam Airlines’ Chairman Dang Ngoc Hoa told the local media that, “Vietnam’s international passenger market likely takes two or three years to return to the growth rate of 2019 but the domestic flights are expected to bounce back shortly after the pandemic is brought under control.”

“With an optimistic scenario, by 2023 or 2024, Vietnam’s aviation market is projected to recover to the same size in 2019,” the chairman said. 

In 2019, before COVID-19, Vietnam welcomed 116 million passengers, up 12% year-on-year. Cargo increased by 11% to 1.5 million tons and aircraft movement increased by 13% to 740,000 flights.