Vietnam must enhance new drivers of growth to avoid the Covid-19 economic trap

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(Photo: VnExpress)

Vietnam's GDP was still growing at 0.4% in the second quarter of 2020 but it was the worst performace recorded over the past 35 years, according to VOV.

The magnitude of the economic slowdown, a drop of almost seven percentage points, was equivalent to the one observed in most affected countries - except that Vietnam's economy was in a better position to resist the pandemic.

The magnitude of the Covid-19 shock might have been bigger than captured by the slowdown from the perspective of jobs and income. The authorities estimate that over 30 million of Vietnamese workers - half of the labor force - were affected at the height of the lockdown during the month of April.

(Photo: Industry and Trade News)

The Ministry of Labor also reported that urban unemployment rose by 33% during the second quarter, while the average income per worker decreased by five percent. Thanks to the easing of social distancing since late April, most family businesses have resumed their activities, and almost all wage workers are back to work.

Vietnamese economy cannot rely on foreign demand and private consumption. Given the uncertainties in the domestic and international contexts, risk-averse households will limit the investment and consumption plans, while exporters will suffer from international mobility restrictions and falling global income.

The tourism sector can miss 20 million foreign travelers that were expected to visit Vietnam in 2020. The export manufacturing industry - a major source of urban employment - will face a further decline in orders from abroad.

The General Statistics Office said that about 31 million workers lost their jobs, reducing their wages because of Covid-19. The service sector is the hardest hit with 72% of the workers affected, the industry and construction with 67.8% affected and the agriculture, forestry and fishery sector. is 25.1%.

(Photo: Bac Giang News)

It is forecasted that from now to the end of the year, the number of jobless workers will increase if the measures to promote business activities are not taken drastically, reported by VnExpress.

According to the World Bank, Vietnam is in a good position to escape the Covid-19 economic trap for at least two reasons. The government has created enough fiscal space to implement an ambitious fiscal stimulus. At the end of 2019, the level of public debt to GDP ratio was about 7 percentage and the authorities had accumulated massive cash reserves.

Vietnam can accelerate the development of contact-free, digital services such as e-learning, e-commerce, e-government, and telemedicine – while working on a generalized digital payment system. Such a move will not only help meet the growing demand for quality services by the emerging middle class, but also improve the country’s competitiveness by reducing transaction cost for both the public and private sectors.

Escaping the Covid-19 economic trap has become the priority for Vietnam, as it will be for many other countries. Vietnamese policy makers have the opportunities to move faster than others. Not only this opportunities help Vietnam adapt its own economy to the new realities, but also inspire other governments in the efforts to define what will be the new normal in the post-pandemic world.

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