Worst of Covid’s economic fallout over: HSBC CEO

“So as 2021 draws to a close, it is time to take a deep breath, believe that the worst really is behind us this time and that Vietnam will resume its economic cadence from 2019,” the bank’s CEO, Tim Evans, said in a note.

The country went through a challenging year as most people did not anticipate the devastating impact of the new Delta variant which very soon led to large parts being placed under various forms of lockdown and the economy taking a very significant hit as a result.

Third quarter GDP shrank by 6 percent year-on-year, the worst figure on record.

But foreign direct investment, Vietnam’s key driver of growth, remained robust and was only marginally impacted despite the serious lockdown in 2021.

FDI in the year until 20 November increased by 0.1 percent.

Exports in the first 11 months of the year were up 17.5 percent, and registered a slight surplus.

The purchasing managers’ index (PMI), which reflects manufacturers’ confidence, ticked up to 52.2 in November signalling a second successive modest improvement in business conditions following a period of decline caused by the fourth Covid wave that started in April.

Activity picked up over the last few months and confidence is slowly returning though challenges remain around getting workers back into factories.

Vietnam’s supply chain recovery has been impacted by a widespread labour shortage, particularly in labour-intensive sectors, with at least 1.3 million workers returning to their hometowns between July and September due to Covid-19 restrictions, according to the General Statistics Office.

Some 17.8 percent of the 22,764 businesses it surveyed experienced a shortage of workers with the highest rate of 30.6 percent being in the southeast.

But new export orders have started to stabilize as manufacturers catch up with their order backlogs. Price pressures have also eased over the past month as raw material prices have started to cool.

“As a result of the easing of production disruptions and pent-up pressures in global supply chains, we are starting to see a bounce but we need to be mindful of any slowdown in export growth as developed markets start to move consumption from goods back to services”.

Another key and growing contributor to Vietnam’s economic performance prior to Covid was tourism.

In the first 11 months of the year Vietnam had only 140,106 foreigner arrivals, a fall of over 96 percent.

While Vietnam’s daily infections have fallen dramatically by 70 percent from their peak in August, there are signs of a fresh surge in cases, which could delay any material reopening of the tourist sector, having a knock-on effect on overall economic recovery.

Vietnam has seen the highest level of investment in renewable energy in Southeast Asia and offers the best potential for renewable capacity addition across the region, with foreign investment driving growth.

The State Bank of Vietnam could consider a higher credit growth cap for green sectors or financial subsidies for green credits, and restrictions or caps on certain carbon-intensive sectors.