Vietnam continues successful economic story beyond a contained pandemic

The article quoted the latest country study of Credendo, saying that Vietnam has been one of the few highly resilient countries during the unprecedented COVID-19 shock.

The swift, strict and very effective containment of the virus after the outbreak in neighbouring China largely explains this, it said, noting that an early travel ban, testing and wide-scale contact tracing on top of the containment measures have helped keep the virus under control.

While most countries were severely hit and hindered by the economic impact of the virus, Vietnam’s economy continued to operate at a good albeit slower pace despite an initial high level of business disruption, it said.

Credeno's study shows that in 2020, Vietnam had exceptional economic performance while advanced and emerging economies in all the world’s regions have suffered a record recession.

The study said for Vietnam, the global demand slump was more than offset by the strong global demand for medical products, electronics and computers resulting from the COVID-19 crisis. Hence, exports of goods grew last year.

Increased public investments in infrastructure also played a significant role in supporting economic activity. A more accommodative monetary policy – including the State Bank of Vietnam’s policy interest rate cut from 6% to 4%– brought an extra stimulus.

According to Credendo, Vietnam remains largely immune to the further waves of the virus that are currently affecting many parts of the world. Hence, the Vietnamese authorities will take time to vaccinate the population.

Vietnam is confidently looking ahead to continue the country’s economic success story, which has been characterised by average growth of 6.8% in the past two decades, it said.

The study stressed that an impressive outcome in the COVID-19 context lies in the fact that Vietnam’s economic and financial risks have not increased. Even though GDP growth reached its lowest level since the mid-1980s, it was in positive territory in 2020 – unlike for most of the country’s peers in the region – and is expected to accelerate strongly this year and towards 6.5%– 7% in 2022.

Meanwhile, Vietnam’s external debt ratios remain low and debt service has barely increased, whereas the current account surplus is persisting despite some narrowing, it said, adding that post-COVID-19 prospects are positive for those risk factors on the back of a global economic recovery.

So far, Vietnam has been benefiting from the changing commercial environment and ongoing supply chain re-organization.

The study said COVID-19 has shaken global supply chains, which could benefit Vietnam in the long term, as it is seen as a stable investment location for business relocation in South-East Asia.

In addition, free trade agreements (FTAs) that Vietnam signed in the period 2019-2020 such as the European Union-Vietnam FTA (EVFTA) or the Regional Comprehensive Economic Partnership agreement (RCEP) will help boost its trade and FDI inflows.

Over the past few years, Vietnam has become a magnet for the biggest multinationals such as Samsung and Apple, which are attracted in particular by strong growth prospects, a low-cost workforce and an investment-friendly climate, to set up large manufacturing sites.

Credendo also stressed that at the 13th National Congress of the Communist Party of Vietnam, which ended in early February, the general political direction for the coming years was confirmed, with the economy and its continued liberalisation as a key priority and guarantor of the stability of the one-party regime.

During the COVID-19 pandemic, Credendo has kept its political risk ratings unchanged. The ST political risk rating is likely to remain at a solid 2/7 thanks to resilient liquidity. It forecast that the assessment will be improved further after the COVID-19 pandemic ends, the global economic situation normalises and Vietnam’s strong economic momentum resumes.

Credendo is a European credit insurance group with its offices across the world. This group operates in all areas of commercial credit insurance and political risk insurance, as well as provides risk insurance products worldwide.