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Economic update – Feeling the impact of Delta variant

Economics Note 13/09/2021    340


  • In Aug, Vietnam’s PMI dropped to 40.2pts, the lowest level since May 2020.
  • For the first time since May 2020, export value dropped 6.0% mom and 5.4% yoy to about US$26.2bn in Aug 2021.
  • Inflation climbed to 2.8% yoy in Aug (vs. 2.6% in the previous month).
  • We lowered FY21F GDP growth rate to 3.9% from previous 5.0-5.5%.

Economic picture deteriorates due to stricter social restriction protocols

Stricter social restriction protocols have heavily hit the service sector. Gross retail sales of consumer goods and services witnessed the fourth consecutive month of decline, to VND279,843bn (-33.7% yoy), and it was even 10.5% lower than the figure recorded in April 2020 when Vietnam adopted nationwide social restriction protocols. Also, the industry and construction were hurt by forth outbreak as the IHS Markit Purchasing Managers’ Index (PMI) of Vietnam dropped to 40.2pts, the lowest level since May 2020.

Vietnam’s export under pressure of the current wave

Per GSO data, export value dropped 6.0% mom (-5.4% yoy) in Aug 2021. This is the first time since May 2020 that Vietnam’s export value witnessed a year-on-year decline (excluding the seasonal factor). Export activities were hit last month as seaports in Southern Vietnam reduced their capacity to meet social-distancing measures and transport was tightly controlled by anti-coronavirus regulations.

State Bank of Vietnam (SBV) took actions to support businesses

On September 7, SBV issued Circular 14/2021/TT-NHNN amending and supplementing several articles of Circular No. 01/2020/TT-NHNN directing credit institutions to extend debt repayment to support customers affected by the COVID-19 pandemic. Specifically, the restructuring of debt repayment terms for customers will be carried out until June 30, 2022, extending half a year longer than the time limit specified in Circular No. 01/2020/TT-NHNN.

We lowered 2021F Vietnam’s GDP growth forecast to 3.9%

In base case scenario, we expect the daily cases curve will flatten and movement control will be gradually relaxed since mid-Sep. Ho Chi Minh City set target to open totally since mid-Jan next year. Domestic flights are expected to resume since late-Sep. Additionally, Government has approved plans to allow fully immunized tourists to visit Phu Quoc since Oct. Incorporating the recent economic performance and outlook, we lower 2021F GDP growth forecast to 3.9% from previous 5.0-5.5%. We maintain forecast of 7.0% for 2022F GDP growth driven by 12.5% growth of export, positive trade balance and stable Vietnam dong.

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