Credendo: Viet Nam continues successful economic story beyond a contained pandemic

Credendo Group’s offices in Germany and Austria have published a study to evaluate the level of risk in Viet Nam, which emphasises that the Southeast Asian country is continuing its successful economic story after its good performance in controlling the COVID-19 pandemic.

 

The article quotes the latest country study of Credendo, saying that Viet Nam has been one of the few highly resilient countries during the unprecedented COVID-19 shock.

The swift, strict and very effective containment of the virus after the outbreak in neighbouring China largely explains this, it says, noting that an early travel ban, testing and wide-scale contact tracing on top of the containment measures have helped keep the virus under control.

While most countries were severely hit and hindered by the economic impact of the virus, Viet Nam’s economy continued to operate at a good albeit slower pace despite an initial high level of business disruption, it says.

Credendo's study shows that in 2020, Viet Nam had exceptional economic performance while advanced and emerging economies in all the world’s regions have suffered a record recession.

The study says for Viet Nam, the global demand slump was more than offset by the strong global demand for medical products, electronics and computers resulting from the COVID-19 crisis. Hence, exports of goods grew last year.

Increased public investments in infrastructure also played a significant role in supporting economic activity. A more accommodative monetary policy – including the State Bank of Viet Nam’s policy interest rate cut from 6 per cent to 4 per cent – brought an extra stimulus.

According to Credendo, Viet Nam remains largely immune to the further waves of the virus that are currently affecting many parts of the world. Hence, the Vietnamese authorities will take time to vaccinate the population.

Viet Nam is confidently looking ahead to continue the country’s economic success story, which has been characterised by average growth of 6.8 per cent in the past two decades.

The study stresses that an impressive outcome in the COVID-19 context lies in the fact that Viet Nam’s economic and financial risks have not increased. Even though GDP growth reached its lowest level since the mid-1980s, it was in positive territory in 2020 – unlike for most of the country’s peers in the region – and is expected to accelerate strongly this year and towards 6.5 per cent – 7 per cent in 2022.

Meanwhile, Viet Nam’s external debt ratios remain low and debt service has barely increased, whereas the current account surplus is persisting despite some narrowing, it says, adding that post-COVID-19 prospects are positive for those risk factors on the back of a global economic recovery.

So far, Viet Nam has been benefitting from the changing commercial environment and ongoing supply chain re-organisation.

The study says COVID-19 has shaken global supply chains, which could benefit Viet Nam in the long term, as it is seen as a stable investment location for business relocation in South-East Asia.

In addition, free trade agreements (FTAs) that Viet Nam signed in the 2019-20 period, such as the European Union-Viet Nam FTA (EVFTA) or the Regional Comprehensive Economic Partnership (RCEP), will help boost its trade and FDI inflows.

Over the past few years, Viet Nam has become a magnet for the biggest multinationals such as Samsung and Apple, which are attracted in particular by strong growth prospects, a low-cost workforce and an investment-friendly climate, to set up large manufacturing sites.

Credendo's article also stresses that at the 13th National Congress of the Communist Party of Viet Nam, which ended in early February, the general political direction for the coming years was confirmed, with the economy and its continued liberalisation as a key priority and guarantor of the social and political stability.

During the COVID-19 pandemic, Credendo has kept its political risk ratings unchanged. The ST political risk rating is likely to remain at a solid 2/7 thanks to resilient liquidity. It forecasts that the assessment will be improved further after the COVID-19 pandemic ends, the global economic situation normalises and Viet Nam’s strong economic momentum resumes.

Credendo is a European credit insurance group with offices across the world. This group operates in all areas of commercial credit insurance and political risk insurance, as well as provides risk insurance products worldwide. 

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