COVID-19: VN needs to respond properly in any circumstances

March 03, 2020 - 08:45

Analyst's Pick: The sharp increase in COVID-19 cases outside China signals a new phase in the fight against the novel coronavirus spreading which have already been damaging the world economy.



Võ Trí Thành

The sharp increase in COVID-19 cases outside China signals a new phase in the fight against the novel coronavirus spreading, which has been damaging the world economy.

As of Monday morning, the number of infections in South Korea had skyrocketed to more than 4,200, becoming the world’s second largest epicentre after China. As of Sunday, Iran had recorded 987 cases, with 54 fatalities.  

China appears to have taken drastic action to slow the spread of the SARS-CoV-2 virus, but the impacts of the outbreak have put the second largest economy in the world and global economic growth on the brink of recession.

Overall, the epidemic has had severe impacts on all sectors and fields because China is the second largest economy in the world (after the US), accounting for about 17 per cent of global GDP and contributing about 33 per cent of global economic growth.

As a major contributor to the global economy, China is a hub in terms of both production (especially industrial) and trade. According to reputable international organisations, the COVID-19 epidemic is expected to reduce global GDP by 0.3-0.7 percentage points in 2020, equivalent to a loss of about US$160 billion, about four times as much as the losses caused by the SARS epidemic in 2003.

Considering the impact to the supply chain, flow of goods chain will be disrupted due to Chinese production stagnation. The Chinese industry is still operating but the capacity has dropped due to the shortage of workers. China’s PMI in February fell sharply to 35.7 from 50 in January, a level much lower than during the global financial crisis. The reduction has led to a shortage of input materials for many factories outside China, hampering their production.

That’s not all. The epidemic has disrupted the movement of goods and labour as tens of millions of people remain in lockdown in dozens of cities, while countries have imposed travel restrictions. Companies selling and buying products to and from Chinese customers are also seeing massive hits in production and revenue. The tourism industry and air transport have both been negatively affected by COVID-19.

The impact of the epidemic itself is huge but what is more worrying is that the panic psychology of people, creating an obstacle for consumption and investment. This is most clearly shown by market surveys and meetings of company executives that have been cancelled. Investors are hesitant as they are not sure about to what extent and for how long the outbreak will continue affecting the world economy.

Effects on Việt Nam

For Việt Nam, the impact of the disease could be even more severe because China is its largest trade partner, especially for exports of agricultural products as well as imports of intermediate goods and equipment. China has also been a huge investor in Việt Nam in recent years.

Moreover, China has great connection with Việt Nam in terms of labour and tourism. Last year, Chinese tourists accounted for over 30 per cent of foreign tourists coming to Việt Nam. Along with that, Chinese experts also work in many factories and investment projects across the country.

According to many associations, if the supply chain and labour supply are disrupted for a prolonged period, firms will face difficulties as the stockpiles they prepared before Tết start running low.  

In the wake of the devastating epidemic, the Ministry of Planning and Investment has revised the country’s growth outlook with two scenarios. If the outbreak is contained within the first quarter this year, 2020’s GDP growth will be 6.25 per cent, 0.55 percentage points lower than the target of 6.8 per cent approved by the National Assembly.

If the disease is contained in the second quarter, Việt Nam’s economic growth this year will be 5.96 per cent, 0.84 percentage points lower than the original target.

However, this forecast was made before the epidemic spread in South Korea and Japan.

An updated report from Bảo Việt Securities Company (BSC) shows that three markets – China, South Korea and Japan – made up one third of Việt Nam’s export revenue and two thirds of its import value in 2019.

In the positive scenario, BSC analysts predicted the country’s GDP growth rate would be 1.05 percentage points lower than the 6.8 per cent target if the outbreak was contained within the first three months. While in the worse case over six months, actual growth would be 1.55 percentage points less than the target.


The biggest issue today is still how to save people, stamp out the epidemic, and at the same time minimise adverse impacts on the economy. Accordingly, there are some basic solutions that should be taken into account.

The important thing is that the COVID-19 epidemic requires the whole political system and Vietnamese people to implement policies more seriously, quickly, drastically and efficiently.

The foremost solution is an information-related policy. Information must be provided in an accurate, transparent and comprehensive manner, giving people and the market peace of mind, thereby helping improve market sentiment and avoiding unnecessary overreactions.

The COVID-19 Prevention and Control Steering Committee needs more staff with in-depth economic and investment expertise to make sound economic contributions and recommendations. Responding scenarios for each business sector as well as the whole economy should be examined immediately.

The Government must continue monitoring on the situation to stabilise the macro-economy, while ensuring liquidity. Debt rescheduling and freezing for businesses affected by COVID-19 should be considered. If possible, the State Bank of Việt Nam should create conditions for commercial banks to cut lending rates. In fact, several commercial banks have already lowered lending interest rates for businesses affected by COVID-19.

On the fiscal side, fee reductions and rescheduling of insurance and tax payments should be implemented immediately for vulnerable business groups. Tax reductions are one solution - even before epidemics began raging - to support the SME community. However, few proposals related to tax reductions have been considered. In this situation, the policy needs to be implemented faster.

Public investments have been delayed, especially those for infrastructure development, thus capital disbursement for the projects should be boosted more efficiently. If this is the case, the cost of the adverse effects of COVID-19 could be offset. 

Specific areas that are directly affected by diseases need to be prioritised for support such as agriculture and tourism. Some sectors where value chains have been severely disrupted, such as textiles and clothing, should also be on the list. Protecting health of workers together with ensuring smoothly customs clearance and import-export procedures at border gates is key to limiting the value chain disruption.

Regarding labour, there are two major issues. The disruption of labour mobility on the one hand causes job losses for some workers who cannot return from their hometown to work due to disease control policies. Because of this, they need to have social insurance and welfare. On the other hand, businesses that have to suspend operations due to a shortage of workers will still have to pay salaries and insurance, so they should also receive support from the Government.

Although the above solutions are proposed to achieve the GDP growth target of 6.8 per cent set for this year, they are extremely difficult to realise due to the uncertainties. Keeping this goal in mind has a positive effect on encouraging authorities, localities and businesses to overcome their difficulties and accelerate administration reforms.

COVID-19 is an unexpected event. But along with the challenges, there are opportunities for Việt Nam to look back at itself, assess partners and markets, and review measures to manage risks.  

For example, in agriculture, although the industry is restructuring, it is not fast enough. This may be an opportunity to accelerate the process. The State apparatus must also operate more drastically and in a disciplined manner to promptly react to unexpected situations.

Faced with the impacts of the epidemic, consumer spending might decline. However, this is also an opportunity for Việt Nam to promote the development of cashless transactions and digital transformation.

Overall, this is also an opportunity to restructure the economy and reform the operations of Vietnamese businesses. — VNS