HANOI -- Vietnam's gross domestic product dropped 6.17% on the year for the July-September period, as stringent lockdowns in key areas including the economic engine of Ho Chi Minh City led to the first decline since 2000 on a quarterly basis.
The economy slid into negative territory during the third quarter after 6.57% growth in the previous three months, the country's General Statistics Office said Wednesday. Vietnam's economy grew 2.69% in the third quarter a year ago. The office revised downward the second-quarter figure from 6.61% on Wednesday.
The new GDP figure underscores the Southeast Asian country's switch from a pandemic success story to hard-hit victim. The third quarter even underperformed April-June 2020, which was Vietnam's slowest quarter since 2000 at only 0.39% growth.
In Ho Chi Minh City, strict social distancing policies to curb COVID-19 continue to hinder corporate production, employment and consumption. The annual growth target of 6.5% set by Hanoi earlier this year looks increasingly out of reach. GDP grew only 1.42% this year through September, with its performance particularly poor in the third quarter. The economy expanded 2.31% in the same period last year.
Final consumption, which accounts for about 70% of Vietnam GDP, fell 2.83% in the third quarter due to severe travel restrictions. Restaurants in Ho Chi Minh City and the capital, Hanoi, are temporarily closed to eating and drinking on premises. With foreign tourists banned from entering the country, occupancy rates at luxury hotels have been low.
Exports continued to drive the economy, growing 5.2% in the third quarter. However, the rise was hampered by strict isolation measures in southern Vietnam, particularly Ho Chi Minh City. The curbs have left workers sleeping at factories or in designated lodgings, slashing production capacity.
Labor-intensive industries involving sewing or wire harnesses are particularly affected. Disruptions in Vietnam's supply chain have led to production cuts by Toyota Motor and other Asia-based automakers.
Ho Chi Minh City's daily tally of new COVID-19 cases is thought to be declining from its peak. But the city detected 3,794 new cases on Tuesday. Cumulative deaths reached 14,499 on the day, accounting for 76% of the country's fatalities.
The current wave hit Vietnam in late April, and the country still trails regional peers in vaccinations. As of Sunday, only 8.4% of Vietnam's 100 million people have been fully vaccinated. A domestically developed vaccine has stalled in the final stages of clinical trials. Hanoi, once cool toward Chinese-made vaccines, looks to accelerate procurement and complete inoculations faster.
The government plans to ease restrictions in Ho Chi Minh City gradually starting in October to resume economic activities, but is expected to move slowly due to delays in vaccine procurement.
The Asian Development Bank this month lowered its 2021 growth forecast for Vietnam to 3.8% from 6.7% in April. Standard Chartered also downgraded its 2021 forecast to 4.7% from 6.5%.
"While we expect growth to recover to 5.5%" year over year in the fourth quarter, "we see downside risks to our forecast -- and a potential interest rate cut -- if the economic impact of Vietnam's COVID outbreak is prolonged. Such a scenario could affect Vietnam's external position," Tim Leelahaphan, economist for Thailand and Vietnam at Standard Chartered told Nikkei Asia.
"We will prepare for a GDP forecast downgrade," Tran Khanh Hien, Acting Head of Research at Vndirect told Nikkei Asia on Wednesday. The Ministry of Planning and Investment on Sept. 14 cut its GDP growth forecast to a range of 3.5% to 4% this year. "Based on the sluggish performance of 3Q, we believe the target of 3.5% to 4% of GDP growth is unlikely," Hien said.
Additional reporting by Kim Dung Tong in Ho Chi Minh City.