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The Covid-19 outbreak in Da Nang has been controlled since late August. The outbreak forced the authorities to restrict mobility and to increase other mitigating measures. This targeted approach has affected the economy less than the April lockdown, according to Nhan Dan.
The World Bank most economic and financial indicators keep demonstrating Vietnam's resilience, but the domestic rebound moderated in August, partly as the result of the Covid-19 in Da Nang.
Exports keep performing well, while FDI inflows slowed significantly. The World Bank suggested that attention should be paid to domestic and foreign investors who may postpone their plans in the current uncertain environment, which needs to stimulate the recovery in the short term and preserve fiscal and debt in the longer term.
In the first eight months of 2020, revenues reached 58.3% of estimated collections – 12.4% lower than the same period in 2019 – due to the economic slowdown and deferred taxes for businesses and individuals designed to support economic recovery. Public expenditure was 8.2% higher than during the same period in 2019, reflecting fiscal accommodations to support economic recovery.
To accelerate the execution of the public investment program, capital expenditure increased to VND221.7 trillion in the first eight months of 2020, up 41.4% compared to the same period in 2019.
The domestic economy expanded in August but at a slower rate than in July and significantly below the rates recorded a year ago. Industrial production grew by 2.1% (y/y) in August, compared to 4.0% (y/y) in July. Growth of retail sales of goods and services (SA) slowed to 2.3 (y/y) in August compared to 5.2% (y/y) in July.
Many experts said that Vietnam will also welcome a large wave of investment from Japan and Europe. The Japan External Trade Organization said that the Japanese Government raised the support package to diversify the supply chain for enterprises in Vietnam to USD 2.2 billion. This support package will accelerate the investment movement of Japanese enterprises to the ASEAN, with a focus on Vietnam, reported by Sai Gon Giai Phong News.
|(Photo: Vietnam News)|
In August, Vietnam's export performance remained resilient, growing 1.42% (m/m, SA), but FDI inflows moderated significantly as they reached about US$720 million in August compared to US$3.1 billion in July 2020. Overall, Vietnam received US$19.5 billion in FDI during the first eight months of 2020, a 14% decline compared to the same period in 2019.
Inflation remained subdued 3.2% (y/y) in August, slightly lower than in recent months due to the stability of food prices. Credit in the economy continued to moderate at 9.4% (y/y) in July, reflecting the decline in economic activity despite the State Bank of Vietnam (SBV)’s policy of reducing interest rates and encouraging commercial credit.
At the end of August, the level of international reserves held by the SBV was equal to US$92 billion, up from US$80 billion at the end of December. While the increase was not rapid as that reported for the same period in 2019, it showed the resilience of Vietnamese economy, which reached a record-high merchandise trade surplus and attracted substantial FDI despite the pandemic.
This performance mitigated the impact of lower remittances and foreign exchange earnings from foreign visitors. The resilience of Vietnam's balance of payments was corroborated by the stability of the value of the local currency compared to the USD.
Economic recovery will depend on how well domestic demand recovers in the wake of Da Nang outbreak. Greater attention should be paid to the impacts of the crisis and on fiscal and financial stability.
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