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Vietnam GDP contracted sharply at 6.17% in Q3, reflecting the
COVID-19 hit to the economy, in line with early signals from the
IHS Markit Vietnam Manufacturing PMI. Indications of sustained
supply chain pressures amid prolonged COVID-19 disruptions further
bear implications for all who depend upon Vietnam manufacturing in
the global value chain.
Q3 GDP post sharpest decline on record
Official data from the General Statistics Office (GSO) of
Vietnam revealed that GDP declined 6.17% in Q3, the sharpest fall
on record. This follows a Q2 GDP expansion of 6.57%, outlining the
extent to which the latest COVID-19 wave has adversely affected the
Vietnamese economy.
This perhaps come with little surprise given how profound the
recent COVID-19 wave has been for the Vietnamese economy, as daily
new cases rose to an unprecedented level in September. Furthermore,
the IHS Markit Vietnam Manufacturing
PMI™ data had also preluded this deteriorating economic trend
in the third quarter, with the PMI figures having plunged sharply
into contraction since June.
IHS Markit Vietnam Manufacturing PMI points to
unprecedented supply-chain disruptions
Over and above implications for demand and output from the
spread of the more infectious COVID-19 Delta strain, Asia-Pacific
economies had also faced issues of supply constraints into Q3 amid
the imposition of virus-fighting mobility restrictions across the
region. Vietnam had perhaps been a poignant example in this case,
with delivery times lengthening in
September at an unprecedented rate since the inception of the
survey in 2011. The extent at which lead times lengthened was also
far more severe than even the prior peak in 2020 when the COVID-19
pandemic first affected the global economy.
The importance of this is not just for the Vietnam economy but
also the global supply chain. The imperative to diversify amid the
bout of US-China trade tensions benefitted regional manufacturers
including those in Vietnam. While the COVID-19 pandemic is unlikely
to diminish Vietnam's role in the global value chain, those who
depend upon Vietnam as a key manufacturing node would likewise have
to bear the consequences of any prolonged disruptions from the
virus spread.
Rising vaccination and lower infection rates in
Vietnam
While the latest COVID-19 wave had hit Vietnam hard, there are
positive signs that the numbers of daily new cases have receded
into the end of Q3. Alongside the continued vaccination efforts
noted in the country, recovery is expected for the Vietnam economy
post the slump in Q3 GDP.
Indeed, September's PMI sub-indices brought some hints of the
situation starting to turn around. Although the headline PMI was
unchanged deep in contraction territory at 40.2, the survey's
production index lifted from August's 16-month low to signal an
easing in the rate of contraction. Future expectations also climbed
from August's all-time low.
That said, we have all been humbled in our expectation that the
supply chain issues will slowly resolve themselves, as evident by
the deterioration in delivery times and persistent price pressures
for manufacturers into 2021. One can imagine that the supply
situation will persist in the short-term with demand expected to
lead in the recovery and contribute to increased imbalances. As
such, signals from upcoming manufacturing PMIs, particularly from
key Asia manufacturing hubs, will be studied for how soon these
supply constraints can ease and where next we will be headed with
the global manufacturing supply chain.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
