Vietnam: Economy virtually flatlines in Q2, improved performance expected in second half
The economy expanded 0.4% year-on-year in Q2 according to recent data, down from Q1’s revised 3.7% growth (previously reported: +3.8% year-on-year) and broadly in line with FocusEconomics panelists’ expectations.
The slowdown was driven by weaker growth in industrial production (Q2: +1.4% yoy; Q1: +5.0% yoy) and a 1.8% contraction in the services sector (Q1: +3.3% yoy), as lockdown measures in place until late April hampered activity. While momentum in the agricultural sector did pick up slightly (Q2: +1.7% yoy; Q1: 0.0% yoy), the sector was held back by drought and the lingering impact of African swine fever.
Q2 likely marked the low point of economic activity, as domestic momentum should rebound now restrictions have been lifted. Indeed, indicators for May and June already suggest a recovery from April’s trough. However, risks to the outlook remain, as UOB comments:
“While Vietnam has been highly lauded for its disciplined handling against the COVID-19 pandemic, resulting in zero death from the disease so far, […] the external environment is far more difficult to overcome. Concerns about second wave of infections continue to plague Vietnam’s key markets of the US and, to a certain extent Europe, making demand recovery a great uncertainty.”