Vietnam GDP performance to remain strongest among Fitch-rated sovereigns in ASEAN
Restrictions to control the spread of the disease will weigh on activity in this third quarter and could persist if the outbreak is not under control.
While the current Covid-19 outbreak may temporarily hold back the positive rating momentum given to Vietnam since April, the country’s GDP performance over 2020-2021 is expected to remain the strongest among Fitch-rated sovereigns in ASEAN, according to Fitch Ratings.
|Fitch Ratings expects Vietnam's economy to expand by 6% this year. Photo: Fitch|
“Some lost growth momentum may also be made up in subsequent quarters as output and social activity normalize, although the risk of further outbreaks will linger as Vietnam’s vaccination rates remain low,” noted Fitch Ratings, saying the growth forecast remains at 6% for 2021.
In April, Fitch affirmed Vietnam’s rating at ‘BB’ and revised the Outlook to Positive from Stable on the resilience at that time of Vietnam’s growth and public finances to the pandemic shock.
Prior to the latest outbreak, the Vietnamese Government had succeeded in keeping the number of Covid-19 cases low, resulting in economic expansion by 5.6% year-on-year in the first half, accelerating from 2.2% from the same period of last year.
However, restrictions to control the spread of the disease will weigh on activity in this third quarter and could persist if the outbreak is not under control, noted Fitch Ratings.
The Government has mapped out plans for a relief package worth roughly US$5 billion (around 1.4% of GDP), focusing on reducing taxes and fees for SMEs. However, Fitch expects Vietnam’s public debt/GDP ratio to remain well below the median for ‘BB’ sovereigns in 2021-2022.
Exports have been an important support for Vietnam’s economy during the crisis. Tourism’s share of GDP fell to 3.5% in 2020 from 9.3% in 2019, and the rating agency believes tourism earnings will remain at very depressed levels well into 2022 as a result of the pandemic.
However, goods exports have been strong, with merchandise exports rising by 26.2% year-on-year in the seven-month period. Anecdotal evidence suggests operations at some factories producing for export have been disrupted by the recent outbreak, but Fitch expects the impact on output to be temporary.
One risk to exports appears to have been resolved in July when the US announced a deal had been reached over Vietnam’s exchange rate policies.
If the agreement results in appreciation of the local currency, this could pave the way for faster growth in per capita GDP in US dollar terms, added Fitch, but noting it is not clear that market forces will put upward pressure on the dong in the near term.
Meanwhile, Fitch suggested a loosening of credit policy designed to cushion the impact of the pandemic may have been one of the factors supporting import growth. Financial system credit rose by 15.2% year-on-year in the first six months, faster than the nominal GDP growth of 6.7%. Fitch expects this trend to be sustained in the second half as the authorities guide banks towards lower lending rates and accept faster system credit growth.
- High inflationary pressure put GDP 6.5% growth target at risk: Gov’t
- Public investment identified as urgent task for economic recovery: Gov’t
- USAID helps ease congestion at Vietnam busiest container port
- HoSE releases information on proprietary trading
- Microsoft seeks greater cooperation with Vietnam in digitalization
- Vietnam targets to have 10 SOEs with over US$5-billion market cap by 2025
- Vietnam’s e-commerce: driver for economic recovery in post-Covid-19
- US gives top priority to relations with ASEAN
- Vietnam’s economy maintains recovery trend
- Vietnam seeks closer economic cooperation with US: PM
National Assembly greenlights extension of resolution on bad debt management
Vietnam highlights multilateralism at Indo-Pacific forum
Where to go and what to do in Hanoi for locals and tourists?
Vietnam seeks opportunities for sustainable education partnerships
“Vietnamese runners are my second family”: Timor Lester athlete at SEA Games 31
Hanoi wants to build second int’l airport in Thuong Tin
Hanoi handicrafts attract international SEA Games 31 guests
Exhibitions mark President Ho Chi Minh’s 132nd birthday anniversary
The Vietnam-US comprehensive partnership facilitates investment activities: PM