Vietnam economy recovering, contraction bottoms out: WB

The update released Friday says the country faced challenges in restarting the economy after prolonged social distancing periods, but the contraction has bottomed out.

With HCMC and other provinces in the South progressively lifting restrictions in October, major mobility indicators have bounced back and economic activities resumed.

The recovery has been particularly strong in grocery and pharmacy, which have reverted close to pre-pandemic levels. In contrast, mobility in workplaces has rebounded at a slower pace than typically observed in previous outbreaks.

Current workplace mobility trends largely reflect the developments in southern provinces where resuming full production has proved difficult because of shortages of input materials as well as labor.

The industrial production index increased in October, largely driven by the resumption of production activities in HCMC and surrounding industrial hubs. The most dynamic subsectors included food and beverage, tobacco, garment and footwear, rubber and plastic products, metals, and furniture, registering double digit month-on-month growth rates.

The manufacturing PMI jumped from 40.2 in September to 52.1 in October, exceeding the 50.0 no-change benchmark for the first time in five months, indicating significant improvement in economic conditions.

Retail sales growth accelerated from 4.4 percent month-on-month in September to 18.1 percent in October thanks to the easing of social distancing measures. Sales of services, which were affected more severely by the fourth outbreak, continued to recover at faster pace than sales of goods.

The trade surplus reached $2.85 billion in October as merchandise exports increased by 5.7 percent year-on-year while import growth moderated to 6.9 percent from 10.2 percent in September.

FDI commitments fell 47.4 percent month-on-month in October after three months of strong recovery. This reversal likely reflects "the seasonality and chunkiness" of FDI, the WB said. Meanwhile, inflation remained subdued despite fuel price hikes.

A credit growth of 14.2 percent year-on-year in October, similar to September, reflected ongoing recovery of economic activities from the fourth outbreak, particularly in the services sectors.

Specifically, the growth of credit to the services sector, which accounted for over 60 percent of total credit to the economy, settled at 15.6 percent year-on-year in October after steadily slowing since May.

The October budget registered a surplus of $1.2 billion after two months in deficit, the WB update notes.

According to the WB, a more proactive fiscal policy would better support economic recovery. The approved value-added tax reduction for businesses in traveling, hospitality and entertainment industries in November and December are expected to help boost domestic demand.

As the economy re-opens and the number of new confirmed cases increases, persisting with the rapid pace of vaccination and increasing vigilance in testing and quarantining should help avoid a new wave of infections, the bank says.

Inflation should be carefully watched as strengthening domestic demand amid rising energy prices around the world may create upward pressure on prices, the WB cautions, adding that financial sector health should be closely monitored.

The economy grew by 5.64 percent year-on-year in the first half of the year, but contracted by 6.17 percent in the third quarter as the fourth wave of Covid raged, leading to a growth of 1.42 percent for the first nine months, according to the Ministry of Planning and Investment.

The government targets economic growth of 6-6.5 percent in 2022 despite the potential challenges posed by the Covid-19 pandemic.