Fitch slashes Vietnam’s 2020 growth outlook from 3.3% to 2.8%

Fitch Ratings Inc. has revised down Vietnam’s economic growth outlook for this year by 0.5 percentage point to 2.8 percent, below the Bloomberg consensus of 6.1%.

Coronavirus is expected to cost Vietnam billion dollars. Photo: Business Insiders

The growth weakness is seen to be led by the industrial and construction and services sectors.

Low oil prices will continue to perpetuate the contraction in the extractive sector seen in the first quarter. The key driver for weakness in manufacturing growth will shift from supply chain disruptions due to lockdowns in China in the first quarter.

Vietnam’s national social distancing will also slow construction activity for the year. Services growth will also face strong headwinds over the coming quarters.

Travel and general movement restrictions will see tourism activity come to a standstill and we expect this to take a heavy toll on hospitality, transport, and retail services, Fitch said in a report.

In an earlier report, Fitch forecasts Vietnam’s GDP growth rate in 2020, at 6.3%, which is 0.5 percentage points lower than the target of 6.8% placed the government.

The organization said Vietnam’s economic growth in 2020 would be affected by the negative effects of COVID-19 pandemic.

According to Fitch, the COVID-19 epidemic would have a strong impact on Vietnam’s growth in the first half of 2020, when production activities stagnated due to disrupted regional supply chains.

In the immediate future, the lack of raw materials and the temporary closure of the border gate causing import and export activities to stall will significantly affect the manufacturing and processing industry.

In 2020, Fitch expects Vietnam’s inflation rate to hit 5.7% while the policy interest rate could be at 6%.

For Thailand, Fitch forecasts real GDP to contract by 4.0%, below Bloomberg consensus of a 1.5% growth due to a collapse in tourism, weak business confidence, and a reduction in household income and consumption.