GDP growth could fall to 34-year low: Fitch Solutions

By Dat Nguyen, Quy Nguyen    March 31, 2020 | 08:16 pm PT
GDP growth could fall to 34-year low: Fitch Solutions
Workers manufacture garment products in a factory in southern Long An Province. Photo by VnExpress/Quynh Tran.
Market research firm Fitch Solutions estimates Vietnam’s GDP will grow at its lowest pace in 34 years at 2.8 percent this year.

The growth rate forecast by Fitch Solutions, a unit of credit rating firm Fitch Group, is the lowest since 1986 when the country 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 percent of GDP, have been under great pressure, given the contraction in pig production following a culling of 20 percent 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 percent year-on-year to $991.5 million, it said.

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 percent 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.

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 percent of GDP, saw growth fall from 8.4 percent year-on-year in Q4 last year to 3.3 percent 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 Tuesday, the World Bank has revised down Vietnam’s GDP growth for 2020 to 4.9 percent, about 1.6 percentage points lower than the projection in its previous support.

The country, however, is set to remain the fastest-growing developing economy in the East Asia and Pacific region, said the report.

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 percent in 2021 and reach around 6.5 percent in 2022, it added. 

Vietnam recorded a decade-low GDP growth of 3.8 percent in Q1 as the country fought the Covid-19 pandemic, banning flights, asking non-essential businesses to close and closing tourist hotpots to foreigners.

Last year, GDP growth hit 7.02 percent, the second highest growth figure in the last decade, after a record 7.08 percent in 2018.

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