Vietnam sees fourth straight month of activity decline

ECONOMIC activity in Vietnam contracted for the fourth consecutive month in August, marking the longest streak of weakness since the pandemic hit, according to the ANZ Vietnam Activity Tracker.

September too is off to a "poor start" said Dhiraj Nim, economist and Khoon Goh, head of Asia research, at ANZ, in their report on Tuesday.

"Google mobility data has fallen sharply, running nearly 70 per cent below the baseline ... this is much worse than April last year, when containment measures were at their most stringent level," they said.

Even as daily new Covid-19 cases remain elevated, vaccination rates remain low. The vaccination rollout picked up pace over the first half of August but has slowed. Less than 20 per cent of the population has received at least their first dose and only 3 per cent of the population has been fully vaccinated, the lowest in Asia.

Amid a deteriorating growth outlook, the drag on exports is of particularconcern, noted the authors.

Exports had had been the mainstay of growth until the ongoing pandemic wave led to a shuttering of activity in manufacturing hubs around mid-2021.

The negative impact is visible in headline export growth,which has been moderating for five straight months,eventually falling into contraction in August.

Other indicators of consumption and investment, such as retail sales and industrial production, were also in the red in August, alongside PMI which slipped deep into contraction at 40.2, the lowest reading since April 2020. Major sub-indices of output, new orders, and future output index too took a hit.

That being said, import growth has held up relatively better, reflecting some extent of substitution by foreign goods since domestic production has been stymied amid lockdowns, the report noted.

ANZ last month downgraded their 2021 GDP growth forecast for Vietnam from 7.7 per cent at the start of the year, to 5.2 per cent.

"In all, there are further downside risks to our 5.2 per cent GDP growth forecast for 2021. Yet, it is worth reiterating that the structural factors that made Vietnam an attractive investment destination as a manufacturing hub remain intact," they said.