Vietnam has reported a dozen new Covid-19 cases after recording no community transmission for more than 100 days. These new cases are mainly from Da Nang city. As of 04 August 2020 the total cases has reached 625 in different areas around Vietnam with eight reported Covid-19 deaths. Without a good and credible strategy to contain the spread of the virus, Vietnam will face with a second wave of the coronavirus pandemic and its economy would enter a big slump.
The Impact on Vietnam's Economy
The coronavirus pandemic had already had a big impact on the Vietnamese economy in the first half of 2020. The impact of the coronavirus pandemic was severe: Vietnam’s Gross Domestic Product (GDP) shrank 3% in the first quarter of 2020 compared with the same period in 2019. Many airlines also halted and cancelled their flights to affected countries. The hardest-hit industries were tourism, transport, electronics, agriculture, and insurance. The economy had already been impacted, before the new wave of coronavirus cases.
Despite having had the virus under control, Vietnam's second quarter GDP grew by just 0.36 percent, compared with an increase of 6.73 percent in the same period in 2019, leaving its economic growth target of 6.8 percent for 2020 unattainable. Compared with other developed economies, Vietnam's growth rate in the first six months at 1.81 percent, although a biggest drop in 10 years, is still a positive sign.
Vietnam faces other severe problems: as of July 2020, 30.8 million people were affected by the pandemic, of which 2.4 million employees lost their jobs. And as the unemployment rate continues to soar, exports have fallen gradually, with the travel industry on the brink of collapse.
Will a reform in monetary policy keep the economy afloat?
Many analysts predict that Vietnam's economy will recover because the country has successfully contained the pandemic and there have been several positive signs that various industries will recover. In July 2020, Prime Minister Phuc ordered the Vietnam National Financial and Monetary Policy Advisory to reform the monetary policy to improve Vietnam's competency; his government aims to keep the Consumer Price Index (CPI) under 4% and to accelerate public spending and boost domestic trade as well as international exports.
He also warned that the Covid-19 pandemic is affecting "many countries that are Vietnam's important partners" and has impacted "trade investment worldwide and caused a global economic recession". The reason for this move was to adopt flexible and appropriate fiscal and monetary policies to boost post-pandemic development, attract more investment, support people and businesses affected by the pandemic, ensure macroeconomic stability and promote trust among citizens.
The Vietnamese government would like to keep the inflation rate between 3% and 4% and its budget deficit to no more than 4% of the country's GDP, while ensuring credit growth over 10% this year. If the number of new Covid-19 cases keep rising and Vietnam cannot control the spread of the virus, this target is probably underestimated and complacent. Ha Noi is monitoring people returning from Danang and surrounding areas following the Covid-19 outbreak.
The Covid-19 pandemic paints a grim picture. Its impact on Vietnam's economy and society is apparent and much more serious than previous forecasts.
For example, in early 2020 the Vietnam Ministry of Investment and Planning predicted that GDP in the second quarter will reduce to 6.09 percent in the event that the coronavirus is effectively controlled. However, they were proven wrong and the economy contracted more than previous forecasts although Vietnam managed to fully control the pandemic at the time.
Looking to the global world economy
Vietnam is a relatively small and open economy and the 44th largest in the world measured by nominal GDP. It is heavily dependent on external factors such as external debt, foreign aid sustainable growth and on the back of increasing Foreign Direct Investment. As such, its industries will be weakened if global supply chains are disrupted by the Covid-19 pandemic. It also worth noting that Vietnam's economy relies on the conditions of the world market, and this will depend on the level of recovery of its economic partners once the pandemic is over. In 2018, the US economy contributed about 15.2% to global GDP. However, its economy has been severely impacted by the Covid-19 pandemic. If the US economy recovers slowly this year, it will lead to disruptions within the world's economy.
The US is a major trading partner of Vietnam, so it directly affects the Vietnam economy. According to the Office of the US Trade Representative, Vietnam's total export to the US was valued at US $ 62.6 billion. If the US cuts its imports from Vietnam this year and considering the impact on its economy due to the Covid-19 pandemic, Vietnam's GDP is likely to decrease in the long term.
In March 2020, Vietnam has announced a stimulus package of 27 trillion dong to keep the economy moving. Interest rates on some Vietnam government bonds fell below the international rate benchmark, so bond investors were actually paying to lend the state money as the Vietnam government will not be able to service its debt. They must raise taxes to foot their bills or cut public spending, as Prime Minister Phuc suggested that these measures were "completely unnecessary".
The Covid-19 pandemic will have a momentous impact on the world economy. It is predicted that this could trigger the deepest global recession in decades and it would result in a 5.2 percent contraction in global GDP in 2020. The Vietnamese government will need to pump more money to help households and companies, and this will be costly but is essential for hundreds of Vietnam citizens who are struggling each day.
The best way of striking a balance between commerce and safety is to commit seriously to a track and trace regime that they have successfully applied before. Vietnam also needs to ensure that the bailout money is spent as fairly and effectively as possible and Vietnam should be ready to ease tariffs, extend credit and put contingency plans in place to respond in the event of a second wave of infections, otherwise the Covid-19 pandemic would destabilise the public and derail the economy.
Photo by Thái An on Unsplash