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Fiscal stimulus expected for Vietnam amid Covid-19 woes

WITH the Covid-19 outbreak dampening tourism and causing supply chain disruptions that threaten factory output, economists expect Vietnam’s government to roll out a targeted fiscal package as early as March.

Although Vietnam’s industrial production rose 23.7 per cent in February, the rebound was mostly due to the base effect of the Tet holiday, which was in January 2020 but February 2019, noted Maybank analysts Linda Liu and Chua Hak Bin in a March 1 note.

Furthermore, the impact of supply chain disruptions on the February figures “may have been cushioned by manufacturers frontloading raw materials before the holidays”, they added. “With factories in Vietnam now struggling to source substitutes for Chinese intermediate goods, we may see deeper damage to factory outputs in March should the disruptions continue.” Vietnam relies on China for about 30 per cent of its imports.

In a March 1 note, Citi economists Ang Kai Wei and Johanna Chua observed that although more land borders between China and Vietnam have reopened since mid-February, congestion and sourcing challenges persist, “with various industry bodies and a JETRO survey suggesting that some companies may face production disruptions from this month if these challenges do not ease”.

The Covid-19 outbreak has also taken a toll on tourism, with visitor arrivals from two key markets — China and South Korea — plunging in February and expected to decline further in March.

Taking into account the Covid-19 outbreak, the Maybank analysts have lowered their full-year growth forecast to 6.2 per cent from 6.6 per cent previously. First quarter growth is expected at 4.9 per cent — the weakest quarterly growth since Q1 2013 — due to slower manufacturing and tourism.

“Our base case assumes the impact to last for one quarter, and growth to see a modest recovery in 2Q, followed by a stronger rebound in the second half of this year,” they added. Given the outbreak, they expect the government to roll out targeted fiscal stimulus packages and boost public investment.

The Citi economists see Q1 growth slowing to 4 per cent and full-year growth coming in at 6.2 per cent, with some downside risks. Though Vietnam’s economic measures amid the virus outbreak have been aimed at debt relief thus far, they see the possibility of a targeted fiscal package being introduced as early as March, via a Prime Minister directive.

Source: https://www.businesstimes.com.sg/asean-business/fiscal-stimulus-expected-for-vietnam-amid-covid-19-woes