Asia Economy

Vietnam is reopening and its early coronavirus containment efforts may help it avoid a recession

Key Points
  • Vietnam's early border restrictions and social distancing measures have helped the country avoid a large wave of infections.
  • Despite sharing a land border with China where the coronavirus first emerged, Vietnam has reported just 271 cases and no deaths in a population under 100 million. It has not reported any new local cases in nearly three weeks.
  • Vietnam's success in containing the virus is attributed to decisive measures the country made early in the outbreak, building off its experience with SARS in 2003. Back then, it was the first country to be removed from a list of countries with local transmissions, according to the World Health Organization.
A propaganda poster on preventing the spread of Covid-19 is seen on a wall as a man smokes a cigarette along a street in Hanoi on April 29, 2020.
Manan Vatsyayana | AFP | Getty Images

Vietnam may be able to avert a recession this year as the country gets back to work and school after early coronavirus containment measures, an economist said on Monday.

"They are not going to be immune to the slowdown of external global demand ... But we don't expect them to fall into a recession or contraction," said Sian Fenner, lead Asia economist at Oxford Economics.

That is as Vietnam's early border restrictions and social distancing measures have helped the country avoid a large wave of infections.

The country also benefited from supply chain diversions due to the U.S.-China trade war and Fenner said those will continue to support the Vietnam's economy.

Fenner's comments to CNBC came after Hanoi started allowing businesses to resume operations from late April.

On Monday, millions of students went back to school after three months at home, making Vietnam one of the first in Southeast Asia to ease movement restrictions. The country closed schools in early February when the first local cases were detected.

Despite sharing a land border with China where the coronavirus first emerged, Communist Vietnam has reported just 271 cases and no deaths in a population under 100 million. It has not reported any new local cases in nearly three weeks.

CNBC

Vietnam's success in containing the virus is attributed to decisive measures the country made early in the outbreak, building off its experience with SARS in 2003. Back then, it was the first country to be removed from a list of countries with local transmissions, according to the World Health Organization.

This time, Vietnam implemented tough controls on travel and people who were potentially infected very early in the outbreak, "as other Southeast Asian states dithered," wrote Huong Le Thu, senior analyst at the Australian Strategic Policy Institute, a think tank.

The government was quick to lock down the country. It quarantined anyone entering Vietnam and stopped Chinese tour groups as well as direct business to and from China, Le Thu wrote in a post on the Council on Foreign Relations website. Vietnam suspended all international flights on March 20 following a new wave of infections from European arrivals.

Hanoi also mobilized intensive contract tracing methods, Le Thu added.

"The fact that Vietnam has a pervasive security state, and can enlist the armed forces (as well as large numbers of civilians) makes it easier for Hanoi to do this kind of public health surveillance," Le Thu wrote.

While there may be questions about the reliability of Vietnam's figures, Capital Economics said in a recent note that it is unlikely Hanoi would end the shutdown if it wasn't confident that the outbreak was under control.

"This is clearly good news for the economy," wrote Gareth Leather, senior Asia economist at Capital Economics.

What life after lockdown might look like
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Life after lockdown

Leather said, however, that lifting restrictions will not prevent the economy from contracting sharply this year, as life is unlikely to immediately return to pre-crisis levels. He argued the main reason Vietnam's growth will remain weak is the deteriorating global outlook.

"Vietnam is one of the most trade-dependent economies in the region, with exports equivalent to over 70% of GDP, and will be hit harder than most," Leather said.

Exports fell 12.1% in March from a year ago and the worst is probably yet to come, he said. Tourism, which generates 4% of GDP, will also remain moribund, he noted.

Leather predicts Vietnam will post 0.5% growth in GDP growth this year, far lower than the 7.0% in 2019. The International Monetary Fund is expecting Vietnamese GDP growth at 2.7% this year.

Vietnam is not the only country lifting movement restrictions in Southeast Asia. In the last few days, neighboring countries Thailand and Malaysia also started lifting curbs.

While those countries resume economic activity, Southeast Asia still has the potential to be the next hotbed for the coronavirus, given concerns about low testing rates in Indonesia and the Philippines.

Meanwhile, Singapore has reported over 18,000 cases — the most in the region — as the city-state grapples with an outbreak in its migrant worker community. Most of those cases are foreign workers, typically men from other Asian countries working in labor-intensive sectors.