Vietnam’s 5% growth target ‘challenging, but not impossible’

May 15, 2020

HO CHI MINH CITY-- In its monthly review, Vietnam Asset Management describes relaxation of the COVID-19 "lockdown" in late April as probably the most efficient measure to boost economic activities. Its initial observation is that, though caution remains, business activities are quickly regaining momentum.

"At macro level, the Government's very firm determination to support growth this year through a series of measures and stimuli is expected to boost domestic demand to partially offset weakened external demand." VAM says.

"Credit growth is another tool the State Bank can use in the context of low inflation on tumbling oil prices and decelerating domestic consumption."

It says that, because exports play an important role in Vietnam's economy, falling global demand will make the Government's target of above 5% GDP growth in 2020 more challenging, but not impossible.

The impact of COVID-19 shows in Vietnam's April economic data. Contraction was observed across the economy, with growth in the manufacturing sector dropping 11.3% YoY (vs. +13.7% YoY in April 2019), retail sales down 25.8% YoY (vs. +13.3% YoY), and tourism down 98.2% YoY.

Foreign investment in the first four months of 2020 also shrank, with committed FDI down 15.5% YoY to USD12.3bn and disbursed FDI down 9.6% YoY to USD5.2bn. Exports and imports continued to decelerate in the month, down 3.5% YoY and 2.3% YoY, respectively.

Prime Minister Nguyen Xuan Phuc told the Government's monthly meeting on May 5 of strong determination to support growth for businesses/individuals, with a strong push for disbursement of public investment over the balance of 2020.

The Government sent out an explicit message that it wanted to spend VND700trn (~USD30bn, more than 10% of GDP in 2019) in public investment in 2020, and that relevant ministries/organisations and local governments would have to take full responsibility if they could not disburse granted public investment this year.

In addition, to facilitate the plan, the Government had switched a number of mega infrastructure projects under PPP form to public investment status, and classified some as "emergency" to shorten the approval process. (ATI).