Covid-19 wave weighing on Vietnam's growth in H2: economists

THOUGH Vietnam remains an outperformer in Asean, the recent Covid-19 surge and corresponding measures are weighing on its second half growth, said economists.

Vietnam saw real gross domestic product growth of 6.6 per cent year on year in the second quarter, accelerating from 4.7 per cent in Q1.

But in an Aug 30 report, DBS lowered its 2021 growth forecast for the country to 5 per cent, down from 6.7 per cent previously.

Maybank Kim Eng economists Linda Liu and Chua Hak Bin have maintained their full-year growth forecast at 5.4 per cent, but expect growth to slow to about 3 per cent in the third quarter.

In August, manufacturing output contracted 9.2 per cent in the steepest fall since April 2020, they noted. This was driven by declines in both electronics and non-electronics production.

The Maybank economists expect manufacturing activities to remain under pressure in the coming months due to Covid-19 measures, noting that many factories are estimated to be running at 50 to 70 per cent of capacity, according to supply chain consultancy CEL.

DBS similarly sees Q3 to be under increasing downside pressure. Since June, strict restrictions have caused retail and recreation mobility to fall 70 per cent below pre-pandemic levels. Year-to-date retail sales were down 4.7 per cent year on year, as of August.

In addition to the impact of Covid-19 restrictions on factory operations, headwinds are mounting for two of Vietnam's largest export destination, the United States and China, noted DBS.

"Vietnam's manufacturing and export downtrend therefore looks set to continue for the time being, in our view, amid the high uncertainty," said the report.