Vietnam: Economy slumps into record contraction in Q3
September 29, 2021
GDP contracted 6.2% year-on-year in the third quarter of 2021, contrasting the 6.6% growth recorded in Q2. The reading marked the strongest contraction since records began in 2000 and reflected the stringent lockdown measures imposed during the period to fight the country’s worst outbreak since the start of the pandemic.
Looking at individual sectors, the services sector led the downturn, declining 9.3% year-on-year (Q2: +4.3% yoy), while the industrial sector contracted 5.0% annually (Q2: +10.3% yoy). Moreover, agricultural production growth slowed to 1.0% (Q2: +4.1% yoy), adding to the overall downturn.
Looking ahead, the economy should rebound in the fourth quarter of the year, as restrictions are gradually eased amid a drop in daily Covid-19 cases since their peak in early September. However, infection rates still remain relatively high, with the possibility of further outbreaks and the associated reimposition of restrictions a key risk to the outlook.
Regarding the outlook, Suan Teck Kin and Peter Chia, economists at United Overseas Bank, commented:
“Assuming the reopening of the economy progresses smoothly to allow businesses and factories to “catch up” with their lost output, and the vaccination rate picks up according to plan, Vietnam’s headline GDP could rebound to 7% yoy in Q4, from the 6.2% contraction in Q3. This will translate to a 3% increase for 2021 (vs. our prior forecast of 5%). Once activities normalize further, we anticipate headline GDP to return to a more “normal” pace of 7.4% in 2022, considering the low bases in 2020 and 2021.”
Author: Stephen Vogado, Economist