Fitch projects Vietnam’s 2020 economic growth to slow to 3.3%

This would be the lowest annual growth rate since the mid-1980s. Growth in 1Q of 2020 slowed to 3.8%, from about 7% in 4Q of 2019.  

The revision reflects the impact of the escalating COVID-19 pandemic on Vietnam's economy through its tourism and export sectors and weakening domestic demand.

The 2020 forecast is highly uncertain and subject to downside risk, depending on the evolution of the pandemic, both within Vietnam and in its major export markets. The country has so far recorded a relatively low number of COVID-19 cases, but these could increase, and large parts of the country are already subject to curbs on economic and business activity to prevent the spread, the organization warned.

The tourism and export sectors are vulnerable to weaker activity. Tourism accounts for about 10% of GDP directly, but its contribution to overall GDP is considerably higher through indirect spillovers.

Tourist arrivals for March fell by about 68% year-on-year. Our baseline assumes the outbreak is contained by the second half of this year and the global tourism industry starts to recover at a gradual pace.

Export is seen to contract sharply, given the fall in demand in Vietnam's key export markets, including the US and China, although the latter has begun to recover; about 23% of total exports were to the US at end-2019, while about 16% were to China.

Weak export demand will affect foreign direct investment inflows into the manufacturing sector. In the previous quarter, FDI inflow was down by 6.6% from a year ago.

The government has raised the relief package to combat COVID-19 to VND300 trillion from VND171 trillion. Additional measures may be introduced if downward economic pressures intensify, including an acceleration of infrastructure spending.

Fitch expects the pandemic will widen the budget deficit to 6.5% of GDP in 2020, from an estimated 3.4% in 2019, while gross general government debt to increase to 42.5% of GDP, from about 38% of GDP in 2019, the report says. 

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