Market research firm Fitch Solutions estimates Vietnam’s GDP will grow at its lowest pace in 34 years at 2.8% this year. The growth rate forecast by Fitch Solutions, a unit of credit rating firm Fitch Group, is the lowest since 1986 when Vietnam opened its economy to the world after decades of war.
Fitch’s forecast is based on expectations that Vietnam’s three main sectors – agriculture, industry and services – will come under headwinds brought about by the coronavirus pandemic.
Agriculture and fisheries, accounting for 13% of GDP, have been under great pressure, given the contraction in pig production following a culling of 20% of the country’s herd last year due to the African swine fever and double-digit drops in exports of the pangasius fish, giant tiger prawns, squid and octopus.
Seafood exporters have seen up to half of their orders canceled or delayed by buyers in Europe, South Korea and China, according to a recent report by the Vietnam Association of Seafood Exporters and Producers (VASEP). Seafood exports to all markets in the first two months fell 10.8% year-on-year to $991.5 million.
Fitch notes that other challenges come from salinity intrusion and drought, which could pose risks to crop yields in the Mekong Delta.
Industry and construction, accounting for 35% of GDP, have also seen slower growth in manufacturing due to supply chain disruptions as a result of China’s lockdown of some cities in the first two months.
Fitch said that the fall could continue in upcoming quarters as global demand weakens with the world entering a recession. Domestic demand could also fall if Vietnam locks down its major cities to contain the virus.
Services, accounting for 44% of GDP, saw growth fall from 8.4% year-on-year in Q4 last year to 3.3% in Q1.
The collapse in the tourism sector could weigh heavily on related sectors like hospitality, transport and retail.
As income falls and jobs are lost, consumer spending could fall, and gains in healthcare services will not be enough to offset the growth deceleration in the services sector.
In a report released by the World Bank, the bank revised down Vietnam’s GDP growth for 2020 to 4.9%, about 1.6% lower than the projection in its previous support.
However, the World Bank says that Vietnam is set to remain the fastest-growing developing economy in the East Asia and Pacific region. While Vietnam remains significantly exposed to the Covid-19 outbreak and the ongoing turbulence in the global financial markets, its economy has remained resilient to external shocks in the first few months of 2020, the World Bank said.
Over the medium term, Vietnam's growth is projected to rebound to 7.5% in 2021 and is estimated at 6.5% in 2022, it added.
Vietnam recorded a decade-low GDP growth of 3.8% in Q1 as the country fought the Covid-19 pandemic, banning flights, asking non-essential businesses to close and closing tourist hotpots to foreigners.