Prolonged COVID-19 takes a toll on Vietnam’s export growth

Vietnam’s export slowdown in Jul 2021

Vietnam’s export growth slowed down in Jul 2021 following outbreaks of surging Covid-19 cases. Exports were estimated at US$27.9bn, up 11.9% YoY and 2.4% MoM. Meanwhile, imports outpaced the exports, growing at 31.8% YoY and at 5.3% MoM to US$29.1bn. This fact brought the trade deficit up to US$1.2bn, from US$455mn a month earlier. 

In 7M21, total exports and imports still hold up robust growths of 26.2% YoY and 35.8% YoY, respectively. Vietnam’s trade deficit in 7M21 was estimated at US$2.2bn, in contrast with a trade surplus of US$8.7bn in the same period last year. From August to December last year, Vietnam’s exports were valued at an average of US$27.0bn, which is a relatively high base compared to July 2021’s exports. VDSC said, due to uncertainty on the trajectory of the latest outbreak, in the remaining months of 2021, Vietnam’s export growth has likely slowed further to low single-digit growth in a year-over-year term.

Deterioration in exports of most key products

According to VDSC, textile, footwear, and handbag exporters are facing a drastic decline in their shipments due to the impact of the pandemic. In July 2021, exports of textile, footwear, and handbag grew insignificantly at 1.8%, 2.3%, and 0.3% YoY vs. an increase of 16.2%, 37.8%, and 18.9% YoY in June, respectively. Exports of wooden products looked better with a growth of 17.1% YoY in July, but there was also a huge drop compared to a growth of 63.2% YoY in Jun. Exports of agriculture and metal products seemed to be less affected by the pandemic, registering an increase of 12.9% and 85.3% YoY, respectively. Besides, exports of electronic products only rose by 2.2% YoY in July although tech manufacturing clusters are mostly located in the North, where the pandemic was brought under control.

There was also a divergence in exports by key markets. Exports to China and the EU remained resilient with a growth of 15.9% and 10.9% YoY in July, up from 15.6% and 3.8% YoY in June, respectively. Exports to the US slowed in July, recorded a growth of 11.5% YoY vs. 27.5% in June. Export growths to other Asia Pacific countries such as ASEAN, Korea, and Japan also narrowed compared to last month as these countries are battling with Covid-19’s Delta variant surge. 

Imports remained strong

Import growth slowed to 31.8% YoY from a growth of 34.3% a month earlier. As Covid-19 measures have triggered an operation suspension in many domestic manufacturers, the import surge was largely contributed by supply shortages and higher import prices. 

However, as imports of intermediate inputs account for more than 50% of total imports, VDSC thinks manufacturing shutdowns and port congestion could further weaken import growth in the upcoming months. In July 2021, imports of consumption goods increased by 35.4% YoY, vs. an increase of 39.9% YoY in June. Imports of intermediate inputs for garment and electronics rose by 19.1% YoY while imports of other capital goods (machinery and steel) were up by 36.7% YoY vs. an increase of 20.1% and 46.1% YoY in June, respectively.

Higher operating costs and logistics bottlenecks

For exporters operating under the “3-on-site” model, operating costs in July 2021 have risen significantly due to weekly testing, equipping amenities, and paying extra wages for workers to stay at the factory. 

Due to varied Covid-19 restrictions within and around provinces, the delay in trucking is triggering congestion in key ports in the South of Vietnam. According to SEKO Logistics, congestion at the Cat Lai and Cai Mep ports is being caused by delays in releasing import shipments and that will lead to a lack of empty containers to be reused for exports.

In Jul 2021, HCMC’s exports were valued at US$3.0bn, dropped by 20.1% YoY while imports were estimated at US$5.0bn, up 19.6% YoY. Exports of nearby manufacturing hubs such as Dong Nai, Binh Duong still maintained a double-digit expansion but are likely to decline in the near term due to lockdown extension. VDSC said, as lockdowns will be extended for another month, exporters may become exhausted and not be able to operate without suitable supports from the government.