OUT of expectation on international trade in Vietnam

Vietnam is one of the most open economies to international trade in Asia. Vietnamese trade
represented 208% of GDP in 2018 (World Bank). Vietnam exports transmission and electronic
apparatus, footwear, technology products and automatic data processing machines. Imports
include electronic integrated circuits and microassembliestool machinery and petroleum oils.
The value of exports was estimated at USD 242.7 billion, a year-on-year increase of 14.3%,
compared with 16.7% a year earlier. The imports of goods amounted to USD 235.5 billion in
2018. The trade surplus reached USD 16.5 billion in 2018, against USD 10.8 billion in the
previous year.
In life, economic and health gains are not always equal. This is true for individuals but also for
countries. While Vietnam has managed to contain the COVID-19 outbreak so far, its economy
has been hurt in recent months. The country’s GDP was still growing at a 0.4 percent in the
second quarter of 2020 (an exceptional rate during the pandemic), but it was the worst
performance recorded over the past 35 years. The magnitude of the economic slowdown, a drop
of almost seven percentage points, was equivalent to the one observed in most affected countries,
except that Vietnam’s economy, like a healthier body, was in a better initial position to resist the
pandemic. The magnitude of the COVID-19 shock might have been bigger than captured by the
slowdown from the perspective of jobs and income. The authorities estimate that over 30 million
of Vietnamese workers – approximately half of the labor force – were affected at the height of
the lockdown during the month of April. The Ministry of Labor also reported that urban
unemployment rose by 33 percent during the second quarter, while the average income per
worker decreased by five percent. Granted, thanks to the easing of social distancing since late
April, most family businesses have resumed their activities, and almost all wage workers are
back to work, according to a recent phone survey conducted by the World Bank Group.
However, one can argue that the economic shock has been unexpectedly large for a country used
to recording full employment during the last two decades. Looking ahead, Vietnam’s economy
remains vulnerable to new waves of coronavirus outbreak and, even in their absence, it could be
stuck in what we can label as the “COVID-19 economic trap.”
In the immediate future, we believe that the Vietnamese economy will not be able to fully rely on
its two traditional drivers of growth – foreign demand and private consumption. Given the
uncertainties in the domestic and international contexts, risk-averse households will limit their
investment and consumption plans, while exporters will continue to suffer from international
mobility restrictions and falling global income. For example, the tourism sector is likely to miss
the 20 million foreign travelers that were expected to visit Vietnam in 2020. The export
manufacturing industry – a major source of urban employment – will face a further decline in
orders from abroad. All manufacturing exports – with the notable exception of computer parts –
have contracted in the past six months with this negative trend accelerating during the most
recent months.
Escaping the COVID-19 economic trap has become the priority for Vietnam, as it will be for
many other countries. Vietnamese policy makers have the opportunity to move faster than
others.  Not only can this opportunity help Vietnam adapt its own economy to the new realities,
but also inspire other governments in their efforts to define what will be the new normal in the
post-pandemic world.

As expected
While Vietnam’s economy has been seriously impacted by COVID-19, it remains resilient and is
poised to bounce back, according to a new World Bank report.
According to the latest Taking Stock report, titled “What will be the new normal for Vietnam?
The economic impact of COVID-19”, released today, although the Vietnamese economy
suffered from COVID-19 in the first half of 2020, prospects remain positive for both the short
and medium term. If the world situation gradually improves, economic activity should rebound
in the second semester of 2020 so that the economy will grow at around 2.8 percent for the entire
year, and by 6.8 percent in 2021. With less favorable external conditions, the economy will
expand by only 1.5 percent in 2020 and 4.5 percent in 2021.
The main challenge for Vietnam will be finding new drivers of growth to consolidate the
expected recovery.  The country’s traditional sources of growth–foreign demand and private
consumption–are unlikely to return to their pre-crisis levels soon, amid continued uncertainties
both at home and abroad. COVID-19 has also caused a surge in inequality as the pandemic
affects businesses and people differently as, for example, workers in the service sector has seen a
bigger decline in their income than farmers.
To adapt to the new normal, policymakers must find new ways to compensate for the weakening
of the traditional drivers of growth while managing rising inequality, said Stefanie Stablemate,
World Bank Acting Country Director for Vietnam. “However, by being ahead of the curve of the
COVID-19 crisis, Vietnam has the unique opportunity to increase its footprint on the global
economy and become a leader in tomorrow’s digital world. The report suggests three
complementary measures for the government to act today so that the country can avoid the
COVID-19 economic trap and return to its historical trajectory of rapid and inclusive growth.
First, it should consider removing mobility restrictions on international travel, gradually and
carefully to balance with safety concerns, as Vietnam’s economy is dependent on foreign visitors
and investments. The second measure is to accelerate the execution of the existing public
investment program to enhance domestic demand. However, the effective implementation of this
action will require significant improvements in the allocation of resources and financial
management. Indeed, the authorities will need to ensure that their resources are directed to the
projects with the biggest positive impact on the economy and jobs, while minimizing technical
and financial losses during implementation. Third, it should provide targeted support to the
private sector, particularly to the hardest-hit industries such as tourism and manufacturing
exports, through a combination of financial assistance and smart incentives.
Vietnam can also exploit several global trends, which have been accelerated by COVID-19, to
push ahead its domestic agenda. For example, in a new global trading system, Vietnam can
consolidate its existing footprint by developing strategic alliances with countries that have also
low rate of COVID-19-infections and boosting promotion efforts to attract companies planning
to diversify their supply chains. Similarly, COVID-19 presents a unique opportunity to move
toward a more “contact-free” economy by promoting digital payments, e-learning, telemedicine
and digital data sharing and, by so doing, help respond to the fast-expanding demand for quality
services by the middle-class in the country.