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Impacts of the European economy in the pandemic on Vietnam

Impacts of the European economy in the pandemic on Vietnam

Tuesday 29, 12 2020
It is difficult for the European economy to show signs of early recovery. Because the European Union (EU) is one of the most important trading partners of Vietnam, this situation is expected to affect our economic growth and European countries' trade and international investment in Vietnam.

Impact of the European economic growth on the Vietnamese economy

The outbreak of the COVID-19 pandemic has slowed down the economic recovery. The European economy is not expected to return to normality by 2023.
 
According to the latest forecast on November 5th of the European Commission (EC), the Eurozone economy will grow at 4.2% next year, much lower than the July forecast of 6.1%. The EC believes that the regional economy is in decline despite a better-than-expected recovery in the middle of this year. The Eurozone economic growth will decrease by 7.8% in 2021, instead of the level of 8.7% as previously forecasted.
 Impact of the European economic growth on the Vietnamese economy
The economic slowdown is more clearly shown in some of the leading European countries. In Germany, the recovery trend of industrial orders slowed down in September, as the government imposed new measures in response to the sharp increase in COVID-19 cases. Specifically, industrial orders only increased by 0.5% compared to August, which is much lower than the level of 1.5% as forecasted. In France, business activities are forecasted to drop by about 15% due to a blockade. Spain witnessed an economic recovery in the third quarter this year, but the economic output was still 8.7% lower than a year ago.
 
In this situation, many EU countries, including key economies, have made a gloomy prediction about the economic and trade promotion in the pandemic. The trend of reducing public income has caused European countries to cut down on direct investment in developing countries. Also, some economic promotion activities have been implemented more slowly. 
 
Vietnam is facing many challenges stemming from the inadequacies of institutions and policies; limited financial and management capacity of corporates; mediocre fundamental standards of ensuring sustainable development in international integration.
 
Besides direct effects from the growth of European countries, the implementation of the European Union - Vietnam Free Trade Agreement (EVFTA) can lead to challenges of market opening, putting greater pressure on domestic goods and services. Along with that are challenges stemming from the Vietnamese economy's internals such as limited competitiveness of domestic enterprises and the weak capacity of industries.
 
Due to the unpredictable scenario, regarding trade, exports and imports between Vietnam and the EU are more complementary than competitive. Therefore, taking advantage of Free Trade Agreements such as EVFTA will be a boost for Vietnam's export to the EU market during the COVID-19 pandemic, with the increased production of textile and aquaculture industries.
 
On the opposite side, Vietnam's imports from the EU will also increase due to the current high tariffs applied to these goods. However, the increase in imports will not focus on the moment immediately after the EVFTA comes into effect, as Vietnam has a 7 to 10-year schedule of eliminating tariffs.
 

What Vietnam needs to do

For the EU, sustainable development and green growth are long-term energy. It is also a part of the European Strategy 2020, which emphasizes smart, sustainable, and inclusive growth, improving Europe's competitiveness and productivity, and promoting a sustainable social market economy. The relation between Vietnam and the EU has never become as close as today, especially after the EVFTA. Vietnam should fully implement the terms of the EVFTA and suggest joint plans of action in some areas such as the marine economy and agricultural exports. These actions will contribute to long-term, comprehensive, and sustainable relations between Vietnam and the EU. 
 What Vietnam needs to do
To attract high-quality foreign direct capital flows from the EU, Vietnam needs to improve the quality of the institution, planning, promotion of FDI. In particular, the complete legal foundation will encourage EU investors to be committed to long-term investment. This factor also helps to improve Vietnam's competitiveness of institution and business environment, especially when EU investors are constantly looking for new markets outside China.
 
Besides attracting investment, it is essential to help businesses and employees from the Northern mountainous provinces, the Central Highlands, and the South West regions to access supporting projects and resources from the EU. EU investors themselves are always concerned with the elimination of social inequality and poverty.
 

Compiled by VietnamCredit

Categories
Vietnam Economy

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