SOUTH EAST ASIA – April 2020
Vietnam: facing the economic impact of COVID-19
At the end of 2019, regarding the geographical significance and the economic potential, Vietnam was determined to benefit from the trade war between China and the US. Indeed, the government of Vietnam set the target of their Gross Domestic Product (GDP) 2020, up until 6,8% at the beginning of the year [TheStar “Vietnam fears it might not hit GDP growth target in 2020 due to Covid-19″, 12 March 2020]. However, regarding the unexpected outbreak of Covid-19 and its further impact, not only the economy of Vietnam but also the global economy is slowing down.
As a neighbouring country to China, Vietnam is one of the countries that are at high risk of coronavirus and its negative effect on the economy. Currently, the government of Vietnam has taken effective measures in protecting its citizens from the Covid-2019 and has kept the number of infected people at 240 (06/04/2020). Nevertheless, from the recent indicator, Vietnam is unable to escape from economic decline. In February 2020, Prime Minister of Vietnam Nguyễn Xuân Phúc had announced to lower the GDP target by 0,55% from the previous goal of 6,8%, due to the Covid-19. [ TheStar “Vietnam fears it might not hit the GDP growth target in 2020 due to Covid-19″, 12 March 2020]. Especially hit are the sectors of tourism, trade and health.
The tourism sector in Vietnam is one of the most important pillars of the economy, with its contribution of 6% on its GDP. [Vietnam briefing “Vietnam’s Tourism Sector: Opportunities for Investors in 2020”, 13 December 2019]. However, the February and March estimates for tourism : a loss of -60% of its international tourists and -80% of domestic tourists. According to the Vietnamese National Administration of Tourism (VNAT), from March until the end of May, Vietnam will experience $5,9 to 7 billion USD damage [Baovanhoa, “Thiệt hại nặng vì Covid-19, du lịch Việt Nam hành động để phục hồi”, 28 February 2020].
Moreover a model of open economy that has spurred growth, now shows its drawbacks in this case.
Economic dependence from China has been disrupted together with supply chains and business trade. Even in the tourism China accounts for 29% of all tourists in Vietnam [Vietnam Briefing, “Supply Chain Shifts from China to Vietnam”, 9 January 2019], now missing due to indispensable travel bans.
To prevent further spread of Coronavirus, Vietnam took a bold step in closing down the schools and social events in February. However, to keep the GDP target, factories, supermarkets, tourist sites, and tourist attractions are operating normally. The prime minister of Vietnam, Nguyễn Xuân Phúc, told that with a worsening situation the targeted 2020 GDP has to be lowered to 5,96% [The Diplomat, how Vietnam learned from China’s coronavirus mistakes, 17 March 2020]. Time will tell if this risky compromise will work.