Earlier this month, Vietnam published its Economy data for Quarter 2 of 2021. As usual, we summarise the data in an Infographic on our Facebook and LinkedIn page. In addition, we decided to take the data from our Market Research Team to provide more details for Q2 2020 to Q2 2021. The reason we choose 5 quarters instead of 4 is simple – we want to include the data that showed the full impact of the first Covid-Wave.
We will cover four key areas in this blog to offer some more insights to our initial Research Infographic. Please note that the implication of the current 4th Covid Wave that has hit Vietnam is not fully shown yet. But with restrictions and lockdown in several provinces, there will be a severe impact on Vietnam’s Economy. This will most likely be shown in the Q3 data.
Vietnam reported a strong second quarter, with the GDP reaching over 6% for the first time since Q4 2019. Considering the GDP for Q2 2020, this has been a very impressive development over the last 15 months. It actually seemed to help Vietnam to reach its target of >6% for 2021, hitting an H1 figure of 5.7%.
However, the current restriction has impacted Vietnam’s economy already, with the forecast for 2021 reduced to 4.5%. Depending on the duration of the situation, it might impact the economy even harder.
The key area that helped to achieve these impressive numbers was Manufacturing and Construction. This area performed best every single quarter – with the highest growth of >10% in Q2 2021. Vietnam certainly benefited from the relatively minor Covid Impact until April this year, therefore, not causing any impact on production. The difficult position between China and the US are in certainly helped as well. For example companies like Samsung or Foxconn have expanded existing or new facilities in Vietnam. On the other hand, the service industry performed not as good, especially during the first Covid Wave in Q2 2020. The disappearance of international tourism, an important part of Vietnam’s economy, certainly impacted it. The sector certainly recovered and performed much better than the whole economies of most countries. But it is still lagging behind the Manufacturing sector in terms of growth rate.
The different growth rates also impacted the overall split of the GDP by sector. The Service sector is still the biggest area in Vietnam. However, the Manufacturing sector contributes nearly 7% more to the whole of Vietnam’s economy than in Q2 2020. It shows the strength of the sector with the increased investment. But it also shows that the Service Sector still has a lot of potentials to be unlocked.
The unemployment rate went up in Q2 2020 due to Covid but recovered throughout 2020 with the lowest rate in Q1 2021. But the unemployment number of Q2 2021 is the first sign of the economic impact of the latest Covid-Wave. It increased while it did not hit the GDP growth immediately.
One interesting fact about the unemployment rate is that the rate is higher for higher education, especially for Colleges and Universities. This most likely links to the development of the various sectors. With the manufacturing sector less impacted, there was less redundancy required than for employees in the service industries other than Retail. However, redundancy due to the latest outbreak hit employees without any qualification faster. With the current restriction, the unemployment rate is expected to increase in Q3.
The next graph shows another impact of Covid in Vietnam. It shows the number of Vietnamese of age 15 and over who reported being directly impacted by Covid. This includes losing their job, reduced working hours, different shifts, reduced income, etc. The number was very high throughout 2020 and decreased dramatically in the first half of 2021, which is in line with the growth. However, like the unemployment rate, this statistic shows the initial impact the latest Covid Wave already had in Q2. We expect to see this number dramatically increasing for Q3.
Over the last few years, Vietnam experienced a high volume of investment. While Covid had certainly impacted this development in Q2 2020, it picked up again later that year. This was specifically the case for FDI, which experienced the highest quarterly FDI volume in Q4 2020. In the end, the total Foreign Direct Investment for 2020 was over US$20bn. This impressive number showed the increased status of Vietnam as an investment location.
However, FDI is still not the key source of investment in Vietnam. For instance, the State Investment from the Vietnamese Government for infrastructure projects and Covid-support increased. Though the key source of investment came from Vietnamese non-state bodies, amounting to over 40% of all investment.
After a sluggish start in Q1 2021, it seems the level of investment in Q2 recovered. Unfortunately, the Covid-related restrictions all over Vietnam have hit the level of investment from foreign or local sources. It is difficult to predict how much and how long the current situation will impact Vietnam – and the resulting issues for local business.
Vietnam’s economy has benefited from strong export over the last few years. It certainly became a popular destination for many global manufacturers, which reflected the volume of exports. After a dent in Q2 2020, the export business performed well and stable, delivering a trade surplus until Q1 2021. While there is no impact on export volume yet, there was a steep increase in imports, driven by additional requirements during the current restrictions. The lockdowns and requirements for factories to close might lead to a further reduction of export in Q3 2021. This could lead to an overall trade deficit by the end of the year. It all depends on how long the restrictions apply for industrial parks in different provinces throughout Vietnam
Vietnam has reported impressive numbers in Q2. The overall GDP growth and that of the individual sectors show the current strength of Vietnam’s Economy. And it was a continuation of the recovery for the very poor Q2 2020.
However, the current 4th Covid Wave severely impacts Vietnam, both its people and economy. With various restrictions in place for cities and industrial parks, the expectation is that growth will decrease. Hence the forecast for 2021 has already been reduced due to a negative outlook. Depending on the length of the restriction, there could be a further reduction.
On the other side, Vietnam has shown after the start of Covid that its economy can recover quickly. And with access to several Free Trade Agreements and a young & educated population Vietnam remains a lucrative target for foreign investment. This might help Vietnam to bounce back already in Q4 2021.
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