Workers produce face masks at the Dong Xuan Knitting Sole Member Limited Liability Company. Face masks are now scarce around the world as people are facing the COVID-19 pandemic. Viet Nam's economic growth is predicted to decrease to 4.8 per cent this year due to the outbreak's impact. — VNA/VNS Photo

Viet Nam’s economic growth rate is expected to slow sharply to 4.8 per cent this year due to the impact of the COVID-19 pandemic, said a new Asian Development Bank (ADB) report released on Thursday.

The report showed the country would suffer an ongoing drop in demand from its principal trade and investment partners.

Economic growth decelerated to 3.8 per cent in the first quarter of 2020, compared to 6.8 per cent in the same period last year. Travel and other restrictions imposed by the Government to slow the spread of the virus led to lower domestic consumption. Manufacturing weathered early headwinds but inputs, including those part of global value chains, are being depleted.

Growth in agriculture stagnated because of lower demand for agricultural exports and severe saline intrusion in the Mekong Delta.

“Growth in services, the sector hardest hit by the pandemic, was halved to 3.2 per cent in the first quarter of this year, down from 6.5 per cent in the corresponding period in 2019,” said the report.

ADB experts said that to support economic activity, in early March the Government unveiled a US$10.8 billion credit relief package of debt restructuring and lowered interest rates and fees. The Government also launched a fiscal package worth $1.3 billion that reduces taxes and fees for affected firms and defers tax payment.

Meanwhile, the central bank cut policy rates by 0.5-1 per cent, lowered interest rate caps on VND deposits of less than six months and on short-term VND lending to prioritised sectors.

According to ADB’s flagship annual economic publication Asian Development Outlook 2020, the Vietnamese economy’s fundamentals remain resilient. If the pandemic is contained within the first half of 2020, growth should rebound to 6.8 per cent in 2021 - ADB’s pre-COVID-19 forecast for Viet Nam in 2020 - and remain strong over the medium and long-term.

“Despite the deceleration in economic activity and the downside risks posed by the COVID-19 pandemic, Viet Nam’s economic growth is projected to remain one of the highest in Southeast Asia,” said ADB Country Director for Viet Nam Eric Sidgwick.

Drivers of economic growth— like the growing middle class and a dynamic private sector are still robust. The country’s business environment continues to improve, while public spending to combat the impact of the pandemic will likely be raised further.

The large number of bilateral and multilateral trade agreements Viet Nam participates in, which promise improved market access, will help the country’s economic rebound. Viet Nam would also benefit from the containment of the pandemic and eventual return of economic growth of China, which would help revive the global value chains. — VNS