Mczkinsey Assesses VN’s Economic Recovery Possibility

10:22:46 AM | 7/7/2020

Viet Nam’s government is now turning its attention to repairing a damaged economy. With exports and tourism severely affected, domestic consumption has been (and is expected to continue to be) critical to hold the economy together, according to McKinsey & Company.

McKinsey & Company, a global management consulting firm, recently published an article titled “Emerging from the pandemic, Viet Nam must position itself for recovery.”

Viet Nam has fared better economically than many countries, but it has not been completely spared. 

GDP growth in the first quarter was at its lowest level since 2010, although it was still in positive territory at 3.8%.  

The consulting firm attributed Viet Nam’s domestic spending to growth. Buoyed by a rapidly growing middle class and rising disposable income, domestic spending has long been a key engine of growth for Viet Nam, accounting for 68% of GDP. Although under pressure from falling demand—two-thirds of Vietnamese surveyed in April 2020 said their income had been disrupted by COVID-19, and 55 percent said they had cut back on spending—the “engine” has largely remained in gear. 

Viet Nam’s suspension of nonessential activities lasted only 22 days - significantly shorter than many other countries, easing some of the downward pressure on consumption. A VND 27 trillion stimulus package released in March, targeting households and small businesses, also helped shore up demand.

Viet Nam will still be reliant on the world economy to recapture its promising growth trajectory.

In 2021, prospects positive for manufacturers once demand returns.

Domestic consumption alone will not likely return Viet Nam to anywhere near its pre-COVID-19 growth trajectory. Its short-term outlook is therefore closely tied to the global economy’s ability to restart, and for the rest of the world’s consumption to return. Most international agencies expect that to begin happening later this year and to accelerate in the next year, with the ADB, WB, and IMF all releasing forecasts at the end of the first quarter predicting Viet Nam’s GDP growth to reach 6.8 to 7.0% in 2021.

Source: VGP