What is the outlook for Vietnam’s industrial production?

Textiles are among the ones taking the biggest hit from the pandemic under unprecedented “3 in 1 spot” conditions during the pandemic. Photo: Quoc Tuan

Current strict measures to contain COVID-19 remain a real challenge for manufacturing firms as it is evident that labor-intensive industries must scale down their production activities to comply with new conditions. Kis Vietnam also saw marked declines in manufacturing industries that rely on domestic demand, especially in F&B. Under an impact of the ongoing COVID-19, industrial production marked the third consecutive decline in August since the first lockdown last year, by 4.24% MoM (excluding Tet’s month). IIP year-over-year growth also fell to contraction territory for the first time in a year, by 7.4%.

By sectors, the mining sector continued to be the most underperform among others as crude oil & natural gas output plunged deeper. Output level in this sector was falling into contraction territory for fourth months and reached a fresh record low in this month, down 6.24% MoM and 2.37% YoY. 

Also above mentioned, many manufacturing sectors were hard hit by the current outbreak. So manufacturing output posted the lowest level in 15 months since May last year, down 4.21% MoM. Its year-over-year growth in 11 months also ended in August, down 9.23% YoY. 

Besides, electricity production & distribution was also impacted by a slowdown in the manufacturing sector, posting a second-month decline of 3.55% MoM (up 1.54% YoY). The water supply industry was the only sector recording positive growth in the month, expanding by 1.36% MoM and 0.23% YoY.

On the positive side, a new update from GSO also showed that the contraction in the industrial sector concentrated on Southern provinces, not spreading nationwide like in the first lockdown. Data also pointed out that the ongoing “enhanced Directive 16” social-distancing measures in those provinces severely affected the textile, apparel, leather, food & beverage industries. Besides, a few other provinces with a similar pandemic situation, including Khanh Hoa, Da Nang, Quang Nam, Ha Noi, also reported marked reductions in industrial output.

Kis Vietnam said that there would be a similar case from Bac Giang and Bac Ninh a few months ago about a disruption in production activities under the strict-containment measures, then a fast recovery emerged after controlling the outbreak. Just one month after the pandemic was controlled in Bac Ninh and especially Bac Giang (Bac Giang had to lock down fourth largest industrial parks in 2 weeks from late May), their production activities were recovering fast in the first two months after the crisis.

“Although the pandemic situation is more complicated this time in the Southern part, a scenario of a similar "fast-recovery" is still possible if the pandemic will be soon under control within September”, Kis Vietnam stressed.

The outlook for Vietnam’s industrial sector would closely link to the government efforts to controlling the pandemic in the remainder of 2021. Manufacturing firms need bailouts but also accommodative policy from the government in a fight against the pandemic. A key factor is when to ease the restriction measures in production activities and to which extent, particularly the “three-on-the-spot” requirement. Besides, data in September and 4Q21 should be put under careful test to see whether a shifting in export orders to other manufacturing hubs continues.

Looking forward to September, Kis Vietnam expected the production conditions continue to be deteriorating, and the 3Q21 performance of the industrial sector would likely be the worst in many years.