Vietnam coronavirus impact to be worse than expected

The government’s forecast that GDP growth could fall to 5.96 percent this year is too optimistic, and if it does not take measures to offset the drag on the economy caused by the outbreak, it could fall to 5.52 percent, Michael Kokalari, VinaCapital’s chief economist, said.

The company made this forecast after assessing the severe impact already on tourism and manufacturing.

The tourism sector, which accounts for around 14 percent to GDP, has seen occupancy rates plummet at hotels and resorts to around 20 percent compared to 80 percent a year ago.

Tourist arrivals, which grew by 16 percent last year, could fall by 5-10 percent this year, causing a one  percentage point reduction in GDP growth, the report said.

Manufacturing, which accounts for 20 percent of GDP, is also struggling as producers cannot import materials from China.

This could reduce industrial production by 2.3 percentage points this year, knocking 0.5 percentage points off GDP growth.

As one-third of the feedstock required by Vietnamese factories come from China, the supply chain disruptions are “likely to put a major dent in Vietnam’s manufacturing output growth this year.”

Thailand, which is similarly placed with regard to the epidemic as Vietnam, has reduced its GDP growth forecast by 1.2 percentage points.

But one positive outcome is that the outbreak could be a catalyst that moves factories from China to Vietnam.

A Moody’s report last week estimated this shift could boost Vietnam’s GDP growth by 2 percentage points a year.

The government has been saying it would make efforts to overcome the epidemic and achieve the growth target of 6.8 percent this year.

Fitch Solution has lowered its growth forecast for Vietnam to 6.3 percent. Last year GDP growth was 7.02 percent.