VIETNAM’S economy recovered in the third quarter, but growth has come in slightly weaker than what economists have expected.

The country’s Q3 gross domestic product (GDP) rebounded to 2.6 per cent year on year, compared with 0.4 per cent seen in the previous quarter, falling short of private sector economists’ expectations of a 2.7 per cent growth.

“This suggests that the recovery pace remains weak after the interruption from a temporary resurgence of Covid-19 cases in the city of Danang during late July. So far the authorities have regained control of the situation and businesses activities are back on track, but remain well below ‘normal’,” UOB’s head of research Suan Teck Kin said.

Maybank Kim Eng economists Linda Liu and Chua Hak Bin noted that Vietnam is the only Asean-6 country that has escaped a recession amid the pandemic this year, but recovery has been dampened by the emergence of a “second wave”.

While the worst of the impact from Covid-19 appears to be over, as is the case for other Asian countries, it is still “a long way” before Vietnam’s economy could return to full capacity, Mr Suan said.

So far, data has shown an “anemic recovery” for the industrial and services sector, which account for more than 70 per cent of Vietnam’s economy, he said. At the same time, the services sector, which is heavily reliant on inbound tourism, has been hit by border closures around the world and could continue being in “a dismal state” for some time, he added.

He is expecting recovery to extend further in the fourth quarter, but with a restrained pace due to the ongoing pandemic, predicting a 4 per cent growth in Q4 and for full-year expansion to come in at 2.8 per cent.

Maybank KE economists are downgrading their forecast for Q4 from 6 per cent to 4.5 per cent, and for full-year growth to come in at 2.9 per cent instead of 3.6 per cent, as “the recovery momentum appears to be losing steam”.

They add that the industry and construction sectors will continue to lead the recovery, while services will trail due to softer demand and the “lack of a meaningful tourism recovery”.

This is because even though Vietnam has resumed international commercial flights between four Asian cities – Guangzhou, Seoul, Taipei and Tokyo – on September 15 after a five-month shutdown, the flights are largely for business travellers, they said.

However, the better-than-expected improvement in retail sales for goods, which grew from 3.6 per cent in August to 4.9 per cent in September, may suggest that non-tourism-related services are starting to catch up, they added.