Vietnam's economy saw recovery from the bottom up

Vietnam's economy is in recovery. Photo: HCM city

Economy at the bottom in 3Q21

Vietnam’s economy experienced the worst contraction on record 3Q21, even far worse than the first outbreak in 2Q20. It fell by 6.17% year-over-year, almost erasing the growth momentum in 1H21, dragging the GDP growth in the first nine months to just 1.43%, also the worst performance of the first nine months on record.

The impact of the most strict social-distancing measures was immense, particularly on the services and construction sectors. Economic activity in these sectors was almost shut down in affected regions in 3Q21, plunging by 9.3% and 11.3%, respectively, translating to a contraction of 3.7% and 1.1% of the overall GDP growth.

The industrial sector, a growth engine of the economy, also faced massive pressure of containment measures placed on production activities. More seriously, at the peak of the pandemic outbreak, the lockdown was causing a broad and serious disruption to the supply chain system across the country. It was the first time that this sector recorded negative growth of 3.5% YoY, further contributing to a 0.8% reduction into GDP’s slump.

Real estate, transportation, retail sales, and construction industries were impacted the most, with the slumps in 3Q21 being at severe levels that were unseen before. Only the financials and agriculture sectors seemed to be not significantly affected during the fourth outbreak.

Recovery in industrial and retail sales

Kis Vietnam said that the V-shaped recovery in the industrial sector would be forming during the first two months of the economic reopening. The appearance of Resolution 128 has relieved tremendous pressure of containment requirements for the production activities. September- October data showed that the industrial sector has been through a resilient recovery shortly after the economic reopening with its production level already surpassing a pre-pandemic level. It is evident that the COVID-19 pandemic just caused a temporary disruption during a lockdown, and this sector is quickly adapting to the new normal.

The recovery in the industrial sector was broad-based and showed a robust strength, beyond Kis Vietnam’s expectation. In a simple analysis, about 90% of 71 level-3 sub-sectors recorded expansion in October, in which the growth pace was from 0% MoM to 30% MoM. Only 1 sub-sector plunged from 30% to 50% MoM, 1 sub-sector dropped from 10% to 30%, and 3 sub-sectors fell less than 10%.

Compared to the pre-pandemic production levels (production level by end-May), 66.2% of level-3 sub-sectors still remained below pre-pandemic levels, in which about 28.2% dropped in a range of 10% - 30% and other 29.6% fell from 0% to 10%. In the group with positive growth, 21.1% and 5.6% of sub-sectors recorded expansion by 0% - 10% and 10% - 30%, respectively.

Meanwhile, retail sales also experienced a similar rebound during the early reopening, although to a lesser extent. Because there are still some containment measures placed on high-risk service activities. In October, the total revenue of the services sector improved by 18.15% MoM to reach VND357.92tn, the highest level since June. From Kis Vietnam’s view, the recovery path of this sector just started, and there would be more evidence on further recovery in this sector in later months. Pent-up demand would be a key to unlocking the full potential of the recovery in this sector in the last two months of 2021, along with the further reopening progress.