A street in HCM City is quiet during the weekend due to the pandemic (Source: VNA) Hanoi (VNS/VNA) - Fitch Solutions on March 24 revised down Vietnam’s economicgrowth in 2020 to 6.3 percent from 6.8 percent previously due to the Covid-19outbreak.
In a report on the outlook for emerging markets (EM), Fitch noted that Vietnam hadlow fiscal flexibility, given its high public sector liabilities, to manoeuvrewith regard to policy, which could limit the size, speed and effectiveness of theirresponses.
Fitch also downgraded the growth of other emerging markets, forecasting thatthe pandemic would pull EM growth down to 2009 levels.
“Although we have not seen many large localised outbreaks of Covid-19 acrossemerging markets, we forecast EM growth to come in below 3.0 percent in 2020.This will mark a sharp deceleration from the recent high of 4.8 percent in 2017and the slowest pace of growth since 2009 during the financial crisis, when EMsgrew by 2.6 percent in 2009,” Fitch said.
It noted it had already made several revisions to its growth forecasts andexpected more over the coming weeks, as an increasing number of countriesexperience outbreaks of their own and as more governments impose localisedlockdowns and travel restrictions.
According to Fitch, the combination of financial market stress hitting EMs,less policy space, weakening external demand and a rising number of localisedcoronavirus cases will weigh heavily on growth.
“Global financial market stress has seen a sharp tightening of liquidityconditions for EMs, which we believe will weigh significantly on growth. Thesharp sell-off in markets has resulted in around a 30 percent decline in theMSCI Emerging Market Equity Index, around a 350 basis points (bps) widening inthe JP Morgan Global EMBI Spread, and about an 8 percent decline in the MSCI EMFX Index since January 2020 on the back of a recent 9 percent appreciation ofthe US dollar across the board. Historically, this type of volatility has led asharp reduction in growth across EMs in the months following the period ofstress.”
While not surprising, there is clear evidence that financial market stress inEMs results in a sharp slowing in growth after financial conditionsdeteriorate.
Going forward, Fitch expected ongoing financial stress and especially the sharpwidening of credit spreads and declining equity, currency and commodity marketsto weigh on growth./.
VNA
