Economy - December 23, 2021 | 05:42 pm PT

2021: few breaks as dark clouds smother Vietnamese economy

Vietnam started 2021 with robust optimism over success in containing Covid-19, but the Delta variant presented a series of serious challenges. There’re reasons to end the year with optimism, though.

Economy shrinks for 1st time ever

At the beginning of this year, several international organizations had forecast growth of 7.5-7.8 percent for Vietnam because of the low base in 2020 and stable foreign direct investment combined with benefits from free trade agreements.

But the fourth Covid-19 wave made that goal impossible to achieve. For the first time since quarterly GDP figures were recorded in 2000, Vietnam saw its third quarter GDP fall 6.17 percent year-on-year. In the first nine months, growth was 1.42 percent.

Two key pillars of the economy, industry and construction, were heavily hurt by prolonged restrictions in manufacturing, disrupted supply chains and plunging consumption demand due to social distancing in many localities.

For the first time, 18 out of 19 localities that account for 44 percent of the country’s GDP recorded negative growth. HCMC posted an unprecedented negative growth of 24.39 percent.

Dong Xuan Market in Hanoi was closed due to Covid-19 in July 2021. Photo by VnExpress/Giang Huy

The government expects growth of 3-3.5 percent next year, but some analysts have said this too would be challenging.

Unemployment, business closures soar

Over 1.7 million people of working age were unemployed in the third quarter, up nearly 500,000 from the previous quarter.

The unemployment rate, meanwhile, rose to 3.98 percent, highest in nearly a decade.

People leave HCMC for southern localities when social distancing regulations were relaxed in early October. Photo by VnExpress/Quynh Tran

At least 12 million people saw their working hours reduced, and 18.9 million reported a decline in income.

Out of jobs and out of cash, millions of workers did everything they could to get out of the big industrial hubs and return to their hometowns. Most of them used motorbikes (some even walked) for hundreds of kilometers, creating an unprecedented reverse migration.

Nearly 9,700 businesses withdrew from the market each month, a historic high.

Workers sleep in tents

Of the businesses that were operational, many had to keep their workers onsite for months to reduce Covid-19 contagion risks.

Workers sleep in tents in a factory in the southern province of Long An during social distancing. Photo by VnExpress/Hoang Nam

The model was applied for the first time in the northern provinces of Bac Giang and Bac Ninh in the second quarter and it proved effective.

However, when it was used in the south on a larger scale, the model’s problems came to the fore as manufacturing companies had to renovate their factories to include accommodation for workers and to pay weekly testing fees.

Some businesses had to pay each worker an extra VND9.3 million ($400) a month to keep them from leaving even though productivity had fallen by half or two-thirds.

Businesses then pleaded with the government that the model be scrapped and normal operation resumed, even as some factories became Covid-19 hotspots with hundreds of new cases.

Supply chains disrupted

Supermarkets in HCMC saw an unusual rise in demand in early July as people stockpiled goods to survive the social distancing period, but outlets were unable to serve everyone as vegetables and meat were out of stock due to disrupted supply chains.

Workers queue up to shop at a supermarket in HCMC in July, 2001. Photos by VnExpress/Quynh Tran

Checkpoints set up between districts and localities to curb the spread of Covid-19 also acted as barriers to prevent essential goods from being transported.

Military personnel were sent to do the shopping for people in HCMC, while some other localities only allowed citizens to shop on specific days using coupons.

When the fourth wave was deemed under control, exporters faced another issue with over 4,550 container trucks stuck in the northern province of Lang Son as China tightened its Covid-19 safety measures.

Price hikes stir inflation concerns

The shortage of materials and ingredients as economies began to recover pushed prices up globally and in Vietnam.

Fuel prices hit a seven-year high in October, just short of surpassing the historic peak of July 2013. Cooking gas prices also rose for six months in a row because of its dependency on global rates.

The prices of rice and construction materials rose 6 percent and 6.8 percent year-on-year respectively in the first 11 months, pushing the Consumer Price Index (CPI) up 1.84 percent.

Unsurprisingly, this has hit consumers hardest. A survey by VnExpress and the Private Sector Development Committee in the third quarter showed that half the workers who’d lost their jobs only had enough cash to last another month.

Stock market hits new peaks

Stock investors were able to extract gains amidst pandemic inflicted economic gloom. The benchmark VN-Index crossed the 1,204-point peak in April 2018 and later reached 1,500 points in November.

An investor looks at stock prices on a smartphone at a brokerage in Ho Chi Minh City. Photo by VnExpress/Quynh Tran

The index surged 34 percent since the beginning of the year, exceeding major markets in Japan, South Korea and Taiwan.

The main reason for the surge was a rise in the number of new investors looking to profit from a new asset class as deposit interest rates fell.

Over 1.3 million new retail stock accounts were opened. There were months when the daily average trading value of the three bourses exceeded VND40 trillion, six times the figure last year. On November 11, the value reached a new record of VND56.34 trillion.

Foreign investors, however, continued to withdraw from the market with net selling value tripling from last year to hit VND55 trillion, compared to domestic investors’ net buying of VND84 trillion.

Demand for margin loans also surged to a record high of 2.75 percent of total market cap.

Resolving the overload issue in placing orders on the main bourse, Ho Chi Minh Stock Exchange (HoSE) early July also helped push the index up to new heights.

Trade value tops $600 billion

Trade value in the first 11 months reached $602 billion, up 10 percent year-on-year, thanks to a recovery in exports in September after nearly six months of trade deficit.

The country has 34 export categories with a value of $1 billion each, among them seven were over $10 billion. The U.S. was the biggest buyer of Vietnamese goods with a value of $86 billion, followed by China, South Korea and Japan.

Free trade agreements, promotion of trade on digital platforms, recovery of global supply chains and rising demand were the main reasons behind the expert surge.

Total trade value is set to reach $660 billion this year for a trade surplus of $2.1 billion.

HCMC land price tag scales new peak

Four land lots in HCMC’s Thu Thiem Urban Area saw an auction price of VND2.4 billion per square meter, giving the city VND34.35 trillion, up seven times from the starting price.

Thu Thiem Urban Area in HCMC. Photo by VnExpress/Quynh Tran

Some analysts said that the unusually high price tag could create a new "land rush" that would eventually hurt property buyers.

Several localities, including Hanoi, HCMC, Quang Ninh and Hai Phong also reported land rushes over ungrounded rumors that caused prices to double or triple within one or two months.

First regular direct flight to U.S.

After two decades of preparation, national flag carrier Vietnam Airlines was able to conduct its first regular direct flight from HCMC to San Francisco with a time of 13 hours and 45 minutes.

The event marked a success for Vietnam’s aviation industry in its effort to tap the U.S. market where around 2.2 million Vietnamese live.

The flight was considered a bright spot in a year when aviation was severely hurt by the pandemic. Six domestic airlines had to cut their number of flights by 81,000 in the first 11 months compared to the same period last year.

Digital assets boom

Digital currencies became a new investment channel for many Vietnamese citizens this year as new investors acted on hopes of massive returns.

Vietnamese block chain game Axie Infinity became a popular play-to-earn platform internationally, attracting hundreds of thousands of players.

However, as cryptocurrencies remain unrecognized by the Vietnamese government, thousands of investors were hurt by their own greed, which was capitalized on by illegal trading networks.