Vietnam at a glance: Ready for new normal

Hanoi was ready for new normal. Photo: Quoc Tuan

As the Delta wave gradually subsidies alongside increasing vaccination rates, policymakers in ASEAN are becoming more confident that they may be able to relax restrictions and re-open borders. Tourism has been a priority for many of them, as the sector has direct implications for growth and the local job markets. This is most evident in countries such as Singapore, Thailand, and Vietnam, where sectors directly or indirectly related to tourism (e.g. aviation, travel, accommodation) have seen a huge toll from pandemic-induced border controls. “We take this critical time of re-openings as a good opportunity to re-visit Vietnam’s tourism, outline new development policies/proposals, and help readers understand what they mean for Vietnam’s recovery”, Mr. Yun Liu Economist, The Hongkong and Shanghai Banking Corporation Limited said.

Recall the good pre-pandemic days, when travel was as easy as hopping on a flight – without worrying about quarantines. Vietnam’s tourism has seen remarkable growth in recent years thanks to the government’s liberalization efforts facilitating visa issuance. Tourist arrivals jumped to historical highs of around 18m in 2019, generating revenue of as much as USD33bn, equivalent to 12.5% of GDP. Around 80% of tourists come from Asia, with Chinese and Korean travelers together accounting for 56%. Indeed, Chinese tourists alone account for the lion’s share – typically as much as one-third – of total tourists, a ratio similar to that in Thailand and well beyond other regional peers of 15-20%.

On the front lines in suffering from COVID-19, tourism has seen almost a total halt of activity. Vietnam received only 3.8m tourists in 2020, and the year-to-date arrivals in 2021 accounted for less than 1% of 2019’s level. In the absence of international tourists, related services – particularly accommodation, transportation, and food services – could not recover meaningfully. Domestic tourism shared some of its burden in the periods of effective virus containment, only to be abruptly interrupted when the Delta wave arrived at end-2Q. Accommodation and food services output slumped by over 50% y-o-y in 3Q, reflecting the severe impact of prolonged lockdowns.

Mr. Yun Liu said the Vietnam labor market would be reeling. Approximately 10% of Vietnam’s workforce is concentrated in accommodation, transportation, and entertainment services, all closely related to tourism. The data likely underestimates the real picture, as the informal sector makes up a large share of Vietnam’s labor, much of it in tourism-related services. With the collapse of tourism, around 60% of workers lost their jobs in 2020, and 90% have quit as of May 2021. While there is no detailed breakdown of the lockdown impact on tourism yet, preliminary data from the General Statistics Office of Vietnam suggests that more than 2m people in the services sector lost their jobs in 3Q, with a nearly 15% q-o-q reduction in their earnings.

In addition, Vietnam’s current account surplus is shrinking. Historically, Vietnam has been running a services deficit of around USD3bn on average per annum, but the deficit halved to only USD1.5bn in 2019, thanks to record-high tourist inflows. However, with the collapse of tourism since 2020, larger services deficits have been a major drag on the country’s current account. While the impact was not yet evident in 2020, even with the services deficit reaching a record high of USD10bn – in fact, Vietnam registered a rather strong current account surplus of 5.5% of GDP in that year, though due mainly to export outperformance and import compression.

Mr. Yun Liu said, in 2021, as exports decelerate in 3Q and imports recover from low base effects, a smaller trade surplus would be unlikely to offset deficits in services and secondary income. “While we expect to see a trade surplus in 2021, we will likely see a small current account deficit of 1.1% of GDP. This has direct implications for Vietnam’s currency, as the waning current account will put depreciation pressure on the VND. We expect the impact to materialize in 2022, with a weaker VND”, Mr. Yun Liu Economist forecasted.