Two Scenarios for Vietnam Economy in 2020

1:41:29 PM | 25/2/2020

According to the Ministry of Planning and Investment of Vietnam, if the Covid-19 epidemic ends at the end of the first quarter of 2020, the country’s export value in the quarter will shrink by 21% and its import value will decline by 13%, with the export and import value with the Chinese market dropping 25% and 12%, respectively. If the epidemic comes to an end in the second quarter, the country’s export value and import value in the first six months will fall by 20.5% and 14.6%, respectively and its export and import activity with China will decrease by 44.5% and 12.5%, correspondingly.

The assessment report on coronavirus outbreak impact on Vietnam's socioeconomic development released by the Ministry of Planning and Investment showed that Covid-19 pneumonia epidemic will affect all economic and social sectors of Vietnam.

The adoption of tough measures to prevent the disease outbreak and spread like restricting entry and exit, suspending cross-border resident exchanges, carrying out medical isolations in cities, restricting circulations in most localities in China and lacking customs forces and forwarders at border gates is likely to hurt Vietnam's exports to China, specially seasonal agricultural products like dragon fruit and watermelon. Impacts on production and export activities depend on how the epidemic develops. Imports from China are also tending to contract owing to stalling production.

Direct impacts

According to the Ministry of Planning and Investment, import, export, tourism and transportation are negatively affected by the epidemic. According to Scenario 1, Covid-19 epidemic ends at the end of the first quarter of 2020, the quarter exports were estimated to reach US$53.9 billion, down 8.3% year on year, of which shipments to China reached US$6.8 billion, down 9.5%, caused by agricultural products (down 10.4%) and seafood (11.4%). Imports were forecast to cost Vietnam US$55.5 billion in the quarter, down 3.2%, of which imports from China valued US$14 billion, down 13.6%, weighed by machinery, equipment and spare parts (down 11%), inputs, fuel and materials (down 16%) and consumer goods (down 17%).

Scenario 2: The Covid-19 epidemic ends in the second quarter of 2020. Accordingly, Vietnam’s second quarter export value was estimated at US$58.5 billion, down 8.1% year on year, with shipments to China down 17.3% to US$7.5 billion, caused by agricultural products (down 19.1%) and seafood (down 21.9%). Meanwhile, its imports were forecast to slip 3.1% year on year to US$61 billion, with the value spent on imports from China sliding 17.6% to US$16 billion, due to falling purchases of machinery, equipment and spare parts (down 10%), inputs, fuels and materials (down 24%) and consumer goods (down 27%).

Notably, the Chinese market always ranks first in international tourist arrivals in Vietnam, accounting for about 30% of total international visitors to Vietnam and standing far ahead of other major markets such as Japan, the United States and Taiwan. The Civil Aviation Administration of Vietnam (CAAV) ordered a temporary cancellation of all routes between Vietnam and China from the afternoon of February 1, 2020. Quang Ninh province closed all open roads and border lines with China and the Government halted issuing visas for Chinese tourists from January 30, 2020 so the number of Chinese visitors to Vietnam during the epidemic period was zero.

Based on surveys of international visitors’ spending, a Chinese visitor spends an average of US$743.6 and a traveler from other countries spends an average of US$1,141.5 in Vietnam. Thus, according to calculations, if the epidemic lasts through the first quarter, the revenue loss from international tourists in 2020 will be some US$2.3 billion. If the plague is still through the second quarter, the loss will be about US$5 billion.

For the transport sector, air transport is quite certainly undergoing severe impacts of the Covid-19 epidemic. Currently, 11 Chinese airlines are operating 32 routes from 14 airports in China to five airports in Vietnam, including Hanoi, Ho Chi Minh City, Da Nang, Cam Ranh and Phu Quoc, with a total of 240 trips a week. Also from these five cities, Vietnam Airlines, Jetstar Pacific Airlines and Vietjet Air are running 72 regular and irregular (chartering) routes to 48 destinations in China with a total of 401 trips a week. Thus, before the order to suspend all flights between Vietnam and China from the afternoon of February 1, there were over 80 flights between Vietnam and China a day on average.

Road and rail transport are also weakening due to the decline in travelers and festivals. Transportation support services will also decrease as a result, especially aviation support services such as flight management and airport services.

If the Covid-19 epidemic comes to an end in the first quarter, the added value of the transport industry will only increase by 5.1% in the first quarter and by 6.12% in the second quarter. In case the epidemic ends in the second quarter, the added value of the transport and warehousing industry will rise by only 5.1% in the first quarter and 6% in the second quarter.

Indirect impact

The complicated and widespread Covid-19 epidemic in China is wrecking Vietnam's agricultural, forestry and fishery production owing to export shrinkages to this market. The degree of effect depends on the time and the course of the contagion.

If the Covid-19 epidemic ends at the end of the first quarter of 2020, then, the export value of agricultural products to China will decrease by US$250-300 million. If it continues till the end of the second quarter, the value will fall by US$600-800 million in the first six months because fruits, vegetables and cassava depend heavily on the Chinese market. In addition, rubber, coffee, tea, seafood, woodchip and other sectors will also suffer a tumble.

The biggest traded items between Vietnam and China are electric and electronic products (In 2019, computers, Vietnam earned US$17.8 billion from exporting electronic products and components, and telephones and components to China, and spend US$19.7 billion on importing these items from the neighboring country). In particular, Vietnam's electronics industry primarily imports components from China. Therefore, quarantine measures will affect the input supply for production as well as the consumer market for the electronics industry of Vietnam.

For the leather and footwear industry, if the complicated development lasts into the second quarter, it will affect input sources of Vietnam. Remarkably, small-scale enterprises have to import input materials across land borders (via road). As a result, this context will hurt their production and export activities.

Strengths and weaknesses revealed

Based on expected direct and indirect impacts of the Covid-19 epidemic on economic sectors and fields, the Ministry of Planning and Investment forecasted that if the Covid-19 epidemic is promptly controlled in the first quarter of 2020, Vietnam’s GDP will go up 6.25% in 2020 (0.55 percentage points lower than the target set in Resolution 01), with the growth anticipated at 4.52%, 6.08%, 6.92% and 6.81% in the first, second, third and fourth quarters, respectively. If Covid-19 epidemic is completely tackled in the second quarter of 2020, the GDP will expand by 5.96% in the year (0.84 percentage points lower than the target set in Resolution 01), with the growth anticipated at 4.52%, 5.1%, 6.7% and 6.81% in the first, second, third and fourth quarters, respectively.

After going through the Covid-19 epidemic, the economy is showing its strengths and weaknesses more clearly, especially in economic structure and resilience to external impacts. Therefore, according to the Ministry of Planning and Investment, it is necessary to accelerate measures to restructure the economy both in the short term and the long term. Accordingly, central and local agencies will necessarily review social and economic losses caused by the disease outbreak; and propose supportive measures to restore production and business, stabilize the people's life and promote economic growth.

Vietnam will continue to launch consistent, flexible macro policies; and manage monetary policies proactively, flexibly, prudently and appropriately with fiscal and other macroeconomic policies to control inflation, maintain macroeconomic stability and stabilize monetary and foreign exchange markets. It will quickly and drastically implement solutions to reform and improve the business environment, enhance national competitiveness, provide more favorable conditions, deliver support and encourage stronger private economic development.

The country will develop the domestic market, improve domestic consumption and promote Vietnamese brands; arouse domestic internal forces, encourage Vietnamese enterprises to develop, encourage goods produced by Vietnamese people; urgently complete procedures for large, important and multipurpose public investment projects, promptly overcome negative impacts from climate change and sea level rise in order to support production and stabilize people’s livelihoods and spread effects on local and regional socioeconomic development and sectoral development.

By Quynh Chi (Vietnam Business Forum)