Vietnam’s GDP grows 6.6% in April-June despite COVID outbreaks

US exports contribute, though delayed vaccinations hinder prospects

Vietnam’s gross domestic product increased 6.61% on the year in the April-June quarter, illustrating the nation’s economic recovery, the government said Tuesday.

The Southeast Asian country’s economy continues to grow on strong exports of smartphones and other products, despite successive COVID-19 outbreaks among factory workers in northern Vietnam.

The economy expanded 5.64% in the 1st half, marking a jump from 1.82% in the same period a year ago, according to the General Statistics Office. Though the rate fell short of the 7% projection by VNDirect Securities, it confirmed Vietnam’s high potential growth. 

Exports to the U.S. in the first half of 2021 increased 42.6% to $44.9 billion, contributing to the GDP gains. Overall exports expanded 28.4% to $157.63 billion.

South Korean technology giant Samsung Electronics, which accounts for about 20% of Vietnam’s exports, continued brisk production of smartphones in the Southeast Asian nation. Exports of garments, shoes and other goods to Europe also increased thanks to Vietnam’s free trade agreement with the European Union, which took effect in 2020.

The highly infectious COVID-19 delta variant slowed operations since the end of April at some factories in the northern provinces of Bac Giang and Bac Ninh, which play central roles in supply chains. But exports have remained strong, spearheading Vietnam’s growth.

Vietnam is pushing ahead with infrastructure improvements to support its export industry. Construction of two new terminals at Lach Huyen Port in the northern city of Haiphong started in mid-May, with the total cost projected at 7 trillion dong ($304 million).

The amount of freight handled by Haiphong Port Company in the January-March quarter increased 14% on the year to 7.12 million tons. Vietnam, expecting this heavy growth in volume to continue, decided to expand the port. Containers of electronic parts, garments and other goods are loaded onto vessels one after another at existing terminals.

Vietnam’s cheap labor made the country a major destination for foreign companies promoting the “China plus one” strategy to diversify their investment. This investment in Vietnam has accelerated since the Sino-U.S. trade war began in 2018, as companies look to avoid punitive American tariffs on made-in-China products.

Taiwan’s Hon Hai Precision Industry, the contract electronics manufacturer known as Foxconn, will invest an additional $700 million in Vietnam this year, with an eye toward boosting revenue in the country to $40 billion in three to four years from $6 billion in 2020.

The laborious and time-consuming process of containing the coronavirus remains a concern for Vietnam. Though the country has been regarded as a “model student” in fighting the pandemic due to its strict disease controls, more than 10,000 people have been confirmed infected since late April when variant strains began to spread.

Infections in northern industrial areas such as Bac Giang are subsiding, but they continue to rise in southern Vietnam’s Ho Chi Minh City and elsewhere. New cases jumped to 868 on Friday as Ho Chi Minh, the country’s commercial capital and biggest city, released a report on massive infections.

Ho Chi Minh City is near a state of lockdown. The operation of buses and cabs is banned, as is eating inside restaurants, while nonessential outings are under voluntary restraint.

Vietnam’s delayed procurement and use of coronavirus vaccines create uncertainly in the economy. Just over 3% of the population has received at least one shot, according to Our World in Data, a lower ratio than in neighbors Cambodia and Laos.

Hanoi cannot rely extensively on Beijing for procurement because of bilateral tensions such as their territorial disputes in the South China Sea. Though a homemade vaccine is at the final stage of clinical testing, full-scale production appears unlikely to start soon despite strong public expectations.

On June 5, the government announced plans to create a fund and spend $1.1 billion to vaccinate 75 million people — roughly 75% of the population — by the end of this year to acquire herd immunity. But hurdles created by the continuing shortage of vaccines have pushed Vietnam to change the target to 70% by early 2022. It adheres to the goal of herd immunity.

Vietnam’s GDP is projected to grow 6.7% in 2021, the highest among Southeast Asian nations, the Asian Development Bank forecast in April. But if vaccine procurement continues to lag, the resumption of full-scale domestic economic activity including tourism will take more time and hamper growth.

By Tomoya Onishi & Kim Dung Tong – Nikkei Asia – June 29, 2021