|Many companies use only skeletal staff. Photo VIR: Le Toan|
Khoon Goh, head of Asian research at ANZ, told VIR that unless there is generous government support for businesses and workers, the negative impact on economic growth could be too much. important.
“Reopening the economy carries the risk that the spread of the pandemic will worsen to such an extent that the healthcare system is strained and activity is affected as businesses and households become cautious. A prolonged lockdown or a premature reopening could both lead to longer-term damage to the potential growth of the economy,” Goh noted.
Closures and travel restrictions in the south of the country have led to a drop in foreign direct investment (FDI) inflows. The registered capital of FDI fell by 11.1% year-on-year in the first seven months of 2021, the decline reaching 53.8% in July.
Foreign investors have also felt the brunt of lockdowns and social distancing. The EuroCham Business Climate Index has hit an all-time high since tracking began 10 years ago. The current business climate is at an all-time low, with more than 75% of companies reporting a sluggish economic situation. The outlook for the next three months is slightly better, but European business leaders still anticipate many challenges ahead.
Meanwhile, a snap survey by the American Chamber of Commerce in Vietnam showed that as of August 25, 13% of respondents had gone out of business or had only skeletal staff, with nearly 50% operating at less than 50% of their normal capacity. Meanwhile, 20% of American businesses have already cut operations by 51-75% due to the pandemic. If the lockdown continues, foreign investor sentiment will only deteriorate further.
Last week, Ho Chi Minh City decided to extend social distancing measures until the end of September. However, Hanoi and Ho Chi Minh City are gradually easing restrictions where possible.
Goh said the priority when reopening should be to boost vaccinations as quickly as possible. However, he added, the proportion of fully vaccinated people is still too low.
Fitch Ratings’ Asia-Pacific Sovereigns team explained to VIR that restrictions related to COVID-19 could weigh on activity in the third quarter of 2021 and could persist until the epidemic is contained. Under this impact, Fitch Ratings’ original 6% GDP growth forecast for 2021 is no longer achievable.
“However, we still expect Vietnam’s 2020-2021 GDP performance to be the strongest among Fitch-rated sovereigns in ASEAN. Some lost growth momentum could be caught up in subsequent quarters at as production and social activity normalize, although the risk of further outbreaks remains as vaccination rates in Vietnam remain low,” the team wrote.
Along the same lines, Tim Evans, CEO of HSBC Vietnam, said a phased reopening would start accelerating from October. The economic outlook by the end of the year depends very much on the deployment of vaccines and the effective and rapid reopening of the economy. He added that as the economy begins to reopen, supply chain challenges are expected to ease, orders will pick up and FDI is also expected to pick up momentum given consistent government policies, one hand – hardworking and resilient workforce, a large number of free trade agreements and a government commitment to spend about 7 percent of GDP on further infrastructure development.
Despite the current environment, Evans said Vietnam remains a very attractive medium-term investment destination, with strong fundamentals that many investors continue to see through the current COVID-19 volatilities.
South Korean investors who know the market well continue to invest. Samsung is expected to expand its facilities as early as the second half of 2021, aiming to increase its production of foldable phones by 47% to 25 million. Meanwhile, LG Display has just received approval for an additional $1.4 billion investment in its Haiphong plant.
Commenting on the FDI outlook for the country, Fitch Ratings’ Asia-Pacific Sovereign Team wrote, “As we noted in our rating action commentary on Vietnam on April 1, 2021, the bulk of strong FDI inflows in 2020 went to the manufacturing sector Net FDI in 2020 was $15.4 billion (around 4% of GDP), close to the year’s level We expect FDI inflows to remain healthy as Vietnam stands to benefit from the ongoing trade diversion, as well as its entry into trade deals such as the EU-Vietnam Free Trade Agreement and the comprehensive regional economic partnership.
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