Vietnam to notch GDP contraction due to COVID-19 curbs

GSO reports that the real GDP witnessed a reduction of 6.17% YoY in this quarter, marking the historic occasion that the growth rate stepped into the red territory and deviating from the recovery path that was shaped in two first quarters this year.

Service was the hardest hit sector when the mobility restriction under Directive No. 16 strongly affected both demand and supply sides of most business lines in this industry. Accommodation and catering (A&C) recorded the largest reduction of 54.80% YoY in this group while transport & storage and vehicles & motorcycles also declined significantly by 21.10% YoY and 19.90% YoY, respectively. Totally, the services sector retreated by 9.28% YoY, dragging the total GDP growth by 3.70% YoY.

The industry and constructions (I&S) sector cannot avoid the downturn as numerous enterprises in this field reduced their production capacity due to the COVID19-affected labor force and “3-on-site” policy. Also, seaport congestion and slow transportation within the country, especially in southern epicenters, interrupted significantly manufacturing. Overall, I&S recorded a contraction of 5.02% YoY in 3Q21 and dragged the GDP growth 1.81% YoY.

Agriculture, forestry, and fishery (AFF) slowed down this quarter amid the overall contraction of the whole economy, although several export-oriented companies in the fishery sub-sector were in trouble with the capacity shortage. The agriculture sub-sector kept growing at the same level as of 2Q21 and was the main reason to ensure the growth in the whole AFF sector. Overall, the AFF grew by 1.04% YoY and contributed 0.14% YoY to the GDP growth.

Amid the gloomy picture, several sub-sectors, such as information & communication and financial services, nearly held their businesses at the prepandemic size due to the inherent necessity and therefore remained growing at acceptable rates. Information & communication increased by 5.03% YoY, and the financial services, including finance, banking, and insurance, grew by 7.13% YoY in this quarter. More notably, companies in the healthcare and social relief sector (HC&SR) with a particular nature in the COVID-19 period have expanded their operations enormously this quarter. HC&SR exclusively accelerated in this period by increasing by 38.65% YoY.

HCM City reopens many activities, permits travel within city from October 1, 2021

Kis Vietnam’s quick survey shows that 3Q21 GDP growth generally underperformed market participants, although various institutions have downgraded Vietnam’s economic prospect to a slowdown. Various economic institutions have recently reduced their forecasts of Vietnam’s economic growth in the third quarter, but the actual value was lower than expected.

In a September report, Standard Chartered reduced its forecast for the 2021 GDP growth to 4.70% from 6.50%. Also, it declined the expansion magnitude of the domestic production in 3Q21 to 1.90% YoY to update the COVID-19 effect in the southern region. Furthermore, the economic performance was much different from the government’s scenario in the Resolution No.1 stated at the beginning of this year.

Vietnam Minister of Planning and Investment, in the meeting of the middle of September, provided the early signal of the economic slowdown when he reduced the government target to a lower range of 3.5%-4.0% from the initial value of 6.5%, indicating that the implicit economic growth for 2H21 probably reaches 1.95% YoY in the worst case and 2.80% YoY in the best case.

In the late September economic meeting held by the National Assembly with economists, a poor economic performance was also mentioned by numerous participants. However, the consensus contraction was between 2.0% and 3.0%, just a half of the actual result.

It is a rocky road to arrive at our desired destination in the 4Q21. Given the severe contraction in this quarter, an extremely high GDP growth rate in the last quarter is a must for Vietnam to meet expectations set by economic institutions and MPI’s plan. Kis Vietnam extracted the implied 4Q21 forecasts from expected annual numbers and show that real GDP in the last quarter has to grow by 9.13% YoY, 12.16% YoY, 11.85% YoY, 8.97% YoY, and 13.98% YoY to meet the expected value of ADB, World Bank, Standard Chartered, Vietnam MPI, and ICAEW, respectively.