While Vietnam is significantly exposed to the COVID-19 outbreak and the ongoing turbulence in the global financial markets, its economy remains resilient to external shocks in the first few months of 2020, the World Bank has said.
Titled East Asia and Pacific in the Time of COVID-19, the World Bank’s April 2020 Economic Update for East Asia and Pacific released on March 31 says on the upside, Vietnam is strongly positioned to benefit from numerous free trade agreements that are coming into force over the forecast period.
The Vietnamese economy is resilient to external shocks caused by the COVID-19, the World Bank says
Though prospects remain favorable for the Vietnamese economy in the medium term, its GDP growth will be affected negatively by the novel coronavirus outbreak which is spreading globally.
Preliminary estimates suggest that the economy could grow about 4.9% in 2020, about 1.6 percentage points lower than our previous forecast.
The hardest-affected sectors would include tourism and manufacturing due to supply chain disruptions. Inflationary pressures are projected to increase temporarily, reflecting uncertain prices of food and fuel, and possible trade disruptions.
With many households now wage dependent even in rural areas, a slowdown in tourism, hotels, and catering as well as manufacturing sectors could temporarily increase poverty during the first half of 2020, the WB says.
It forecasts the country’s fiscal deficit will temporarily increase in 2020 due to lower revenue and the fiscal stimulus that will partially compensate for the negative effect of the global pandemic on the national economy.
However, the bank says over the medium term, Vietnam’s economic growth is projected to rebound back to 7.5% in 2021 and converge at around 6.5% in 2022, reflecting an improved external demand and a firming of the services sector, as well as a gradual recovery in agricultural production.
The economy will also rebound from the global coronavirus pandemic. Poverty is projected to continue to decline further, as labor market conditions are expected to remain favorable.The bank predicts Vietnam could manage external risks by persifying its trade flows, improving its competitiveness and adhering to new trade agreements, including the European – Vietnam free trade agreement (EVFTA).