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Vietnam's economic growth to reach below 6% in 2020

Vietnam's economic growth to reach below 6% in 2020

Friday 27, 03 2020
Standard Chartered also lowered its growth forecast for Vietnam by 0.4 percentage points last week. However, Vinacapital Fund commented: “The forecast is still too optimistic.

Due to the severe impact of the corona virus, the Ministry of Planning and Investment (MPI) said that Vietnam's GDP growth is likely to reach only 5.96% in 2020, a decrease of 0.8 percentage points compared to the previous estimates.

Tourism contributes 14% to GDP

Standard Chartered also lowered its growth forecast for Vietnam by 0.4 percentage points last week. However, Vinacapital Fund commented: “The forecast is still too optimistic.

The impact of corona virus on Vietnam's economic growth will be much considerable because of its huge impacts on tourism (accounting for 7% of GDP) and manufacturing (accounting 20% of GDP)”. Instead, Vinacapital forecast that Vietnam's economic growth would drop by 1.5 percentage points in the event the Government fails to offset the negative effects of Covid-19.

Vinacapital referred to the case of Thailand, which has a similar share of tourism with Vietnam and small share of production in the economic structure.

However, Thailand’s economic growth is expected to decrease by 1.2 percentage points. This is the reason why Vinacapital believed that Vietnam's economic growth forecast is still too optimistic.

According to the General Statistics Office of Vietnam, the tourism industry accounts for 7% of GDP, but if the indirect contributions of the tourism industry are taken into account, the actual figure would be up to 14%.

Currently, the number of visitors to Vietnam has decreased by 50-60% because of the corona virus. The occupancy rate at hotels and resorts is only around 20%, much lower than the usual rate of 80%.

Vinacapital estimated that the number of visitors to Vietnam would decrease by 5-10% this year after growing by 23% in 2019. A 5-10% decline in tourist arrivals will reduce Vietnam's GDP growth by 1 percentage point.

Regarding manufacturing, Vinacapital estimated that production would contribute 20% to Vietnam's GDP, although the official figure is only 16%.

Growth forecasts from MPI and Standard Chartered are based on the assumption of a 2.3-3.3% decline in manufacturing. According to Vinacapital, this assessment is reasonable under current conditions, but such production decline will cause Vietnam's GDP growth to fall by 0.5 percentage points.

However, the negative impact caused by the Covid-19 epidemic will be curbed by the pumping of liquidity of central banks around the world.

Vinacapital believed that the Government of Vietnam could easily offset parts of the impact of the corona virus by boosting infrastructure spending.

“Every cloud has a silver lining”

In 2019, many international companies have considered moving production from China to Vietnam because of the trade war.

More sudden and unexpected than the trade war, the outbreak of the novel coronavirus has sounded a warning bell for international companies about over-reliance on China.

Vietnam's economic growth to reach below 6% in 2020

​Vinacapital believes that when the anxiety subsides, the Covid-19 epidemic will act as a catalyst even greater than the trade war in urging companies to move production lines to Vietnam due to fear of impacts of the epidemic.

In fact, many companies are speeding up the process of moving production to Vietnam. "The unpredictable effects of the corona virus will certainly cause electronics manufacturers to move production facilities outside China" a supply chain manager told the Nikkei Asian Review. "No one can take risk after all of this ...

The loss is not just cost but supply chain continuity." Recently, Nikkei Asian Review reported that Google and Microsoft are trying to transfer production from China to Vietnam.

Google is expected to start production of the latest low-cost smartphone expected to be called Pixel 4A with partners in Northern Vietnam as soon as April 2020.

In addition, Google also plans to produce next-generation smartphones - Pixel 5 - in the second half of 2020 in Vietnam. In addition, Microsoft plans to begin production of the Surface product line including laptops and desktops in Northern Vietnam as early as Q2 / 2020.

The benefits of manufacturing in Vietnam are also evident in the case of Samsung. While rivals are struggling due to stagnant manufacturing activities in China, Samsung still operates thanks to its investment in manufacturing in Vietnam.

Many other companies are also considering moving production to Vietnam.

Therefore, Vinacapital believed that in the long term, Vietnam would enjoy a lot of benefits when companies promote production diversification out of China.

​>> Vietnam’s economic overview in January 2020

Source: SSI

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Business Economy News

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