Negative impacts of nCoV on Vietnam economy may extend to late Q2
Vietnam’s economy is certain to slow down in the first quarter, but the impact could linger to the second quarter.
With the complicated and dangerous nature of the new coronavirus (nCoV) outbreak, the negative impact of the virus on Vietnam’s economy will likely persist until the end of the second quarter this year, according to Bao Viet Securities Company (BVSC).
Similar to China, Vietnam’s service sector is also expected to be the hardest hit, especially transportation, accommodation, tourism, retail sales, catering, and entertainment, said BVSC in its latest report.
Chinese tourists accounted for 32% of total number of foreign visitors to Vietnam in 2019, therefore, suspending visa issuance for Chinese tourists will certainly harm the tourism industry. Besides, it is now the peak season of domestic spring tourism activities and festivals, which will be significantly weakened by the epidemic.
“Notably, these activities are seasonal, therefore, the decline could hardly be compensated in the upcoming months, even when the epidemic is over,” stated the report.
In 2019, the service sector accounts for 41.6% of Vietnam’s GDP. Even though this proportion is not as high as in China, the service sector accounts for 45% of Vietnam’s GDP growth. Industries with significantly higher growth rate include wholesale and retail sales (up 8.82%); transportation and warehousing (up 9.12%), among others, all of which will fall under the influence of the epidemic.
These sectors, including wholesale and retail sales, auto mechanics, transportation, warehousing, accommodation and catering, and arts and entertainment, currently account for 17.3% in total of Vietnam’s GDP in 2019.
Apart from the service sector, the agriculture, forestry, and fishery will be negatively affected by the epidemic with the plunge in exports of these products to the Chinese market. China is a major market for Vietnam’s farm produce, spending US$5.92 billion on buying Vietnamese goods, accounting for 35% of the total. Therefore, if trade with China is affected by the virus outbreak, the growth of agro-forestry-fishery sector, which is already low, will face the risk of further decline, thus lowering the demand for labor in this sector.
For the industry-construction sector, disruptions in global supply chain resulting from the nCoV outbreak will possibly affect the import of commodities used as input materials for production in Vietnam. According to the General Department of Vietnam Customs, Vietnam’s total import-export value with China accounted for about 30% of Vietnam’s total export in 2019, of which exports to China accounted for 24% while imports from China made up 38.7%.
On that basis, Chinese disease outbreak could affect productions of Vietnam’s key export products that heavily depend on imported materials, such as cell phones & electronic components, computers, electronic products, textile, and footwear, among others.
In a positive scenario, BVSC forecasts that Vietnam's GDP will grow by about 6.5% year-on-year in the first quarter of 2020, 0.2-0.4 percentage points lower than the same period in 2019.
Meanwhile, Viet Dragon Securities Company (VDSC) offered a less optimistic view with GDP growth projected to slow to 6 – 6.3% year-on-year in the period.
