Vietnamese market risks

 The new Vietnam Country Report by credit insurer Atradius (www.atradius.co.uk) warns a major surge of Covid-19 cases, coupled with a slow vaccination rollout, pose an acute risk to Vietnam’s economic short-term recovery. If unchecked, the pandemic’s spread could seriously affect domestic demand, lead to increased disruptions of manufacturing output, and drag Vietnam’s economic performance downward.

Vietnam has been a global outlier during the pandemic, being one of the few worldwide economies to avoid economic contraction last year.  But as Atradius explains, after annual growth rates of around 7% over the past five years, Vietnam’s GDP growth slowed to 2.9% in 2020 but gained momentum in the first half of 2021, increasing 6.6% year-on-year in Q2. Exports from Vietnam grew by 28% as the country benefited from robust demand for electronics and garments from its key export markets China, US and the EU.  Supported by strong export growth, industrial production increased by 9.3% in H1 of 2021.

Vietnam’s financial resilience to date has been driven by its successful containment of coronavirus with contact tracing, isolation and quarantining.  However, since May, daily cases have significantly increased, and vaccination rates are still very low while new lockdowns and restrictions have been imposed.  Consequently, Atradius reports industrial production has slowed significantly and the Purchasing Managers Index has contracted due to social distancing measures, temporary factory closures and supply-chain disruptions.  Positively, industrial production and private consumption are both still expected to grow by 8% and 6% respectively in 2021 with GDP growth forecast to increase by 6.6% in 2021 and 7.8% in 2022.  Nevertheless, Atradius warns these figures could fall should the surge in cases continue with a marked acceleration of the vaccine rollout key to sustaining envisaged robust growth rates.

“Despite short-term challenges created by the pandemic, Vietnam is a key potential market for UK exporters with strong fundamentals.  It benefits from a large, skilled labour force, relatively low wage costs and is the main low-cost regional alternative to China for export-orientated manufacturing.  The shift of export manufacturing from China to Vietnam accelerated as a result of the Sino-UK trade dispute and increased further due to coronavirus-related supply-chain disruptions.  As well as lower production costs, Vietnam is already part of several value chains, has good road, rail and port infrastructures as well as strong investment promotion and special economic zones which make it attractive to businesses,” comments James Burgess, Head of UK Commercial, Atradius.

“With the right approach, firms can seize the opportunity to do business in Vietnam and navigate the ever-changing risks and uncertainty posed by the pandemic.  Key to this is awareness of the risks, comprehensive knowledge on individual buyers and the wider market, real-time monitoring, the ability to adapt and non-payment protection should the worst happen.”

In the long run, Atradius expects Vietnam will continue to be one of the fastest-growing economies in the Asia-Pacific region and an attractive market for exporters.

The full report can be downloaded at https://atradius.co.uk/reports/country-report-covid-vaccinations-key-to-vietnam-gdp-growth-2021.html