In May, industrial production exhibited high resilience by expanding by 1.6 percent (m/m) but retail sales dropped by 3.1 percent as they were affected by social distancing and shops’ closures.

WB: Vietnam’s Industrial Manufacturing Shows Resilience during the Fourth Covid-19 Outbreak
Photo Credit: GettyImages
The fourth outbreak of coronavirus has led to the sharpest rise in number of COVID-19 cases since the pandemic broke out in Vietnam last year, pushing the government to implement tougher mobility measures, including in main urban centers and a few industrial parks.
In May, industrial production exhibited high resilience by expanding by 1.6 percent (m/m) but retail sales dropped by 3.1 percent as they were affected by social distancing and shops’ closures.
Vietnam’s external position slightly eroded in May with a decline in merchandise exports and FDI commitments, down by 6.7 percent and 20 percent, respectively, compared to April.
Domestic prices increased by 0.3 percent (m/m) driven by higher global commodity prices while credit expanded at a slower pace due to weakening economic activities and slightly higher interbank interest rates.
The government’s budget registered a surplus in the first five months of 2021 as revenue collection rose by 15.2 percent (y/y) while total expenditure decreased by 3.7 percent (y/y) due to a marked slowdown in the execution of the public investment program.
Looking ahead, close attention should be paid to the evolution of industrial production and retail sales as both could be further affected by the COVID-19 fourth outbreak. Exports may also suffer from the slowdown of activities in some industrial parks. If the current outbreak is not contained quickly, the government may wish to consider adopting a more accommodative fiscal stance to support affected people and businesses and to stimulate domestic demand.
The fourth COVID-19 outbreak that started in lateApril 2021 has led to the sharpest increases inlocally transmitted infections since the onset ofthe pandemic (Figure 1). New highly contagiouscoronavirus variants led to hundreds of positivecases per day by late May, which is a low incidencerate by international standard but the highestrecorded by Vietnam. 
In response, the authorities imposed stringent mobility restrictions in affectedprovinces, including in the country’s three majorcities – Ho Chi Minh City, Hanoi and Danang. The authorities also had to shut down several factories and industrial zones in Bac Giang and Bac Ninhprovinces, two important industrial hubs in theNorth of Vietnam, which were the epicenters ofthe outbreak. As of June 5, all time total infectionsstood at 8,580 with 53 deaths, including 4,504cases and 12 causalities during May
Vietnam continued to lag most countries in the world in its vaccination effort since only 0.03percent population has received two shots of thevaccine as of June 5. In response, the governmentexpanded efforts to accelerate procurement ofCOVID-19 vaccines from different suppliers, and itis considering partnerships with foreign companiesto produce the vaccine in Vietnam.
Mobility deteriorated sharply in response to social distancing restrictions
All major mobility indicators declined sharplyduring May as restrictions were put in place tocontain the fourth outbreak. Public transport hubswitnessed the sharpest decline, followed by places of retail and recreation like restaurants as thegovernment ordered closure of many indoorservices. As firms encouraged home-based work,mobility in workplaces also fell Industrial production in May 2021 expanded byan estimated 1.6 percent (m/m) and by 11.2percent (y/y) despite the recent developmentsof the COVID-19 pandemic. 
The PMI index remained comfortably expansionary at 53.1 in May, but was slightly lower than theApril value of 54.7. These average figures mayhowever mask variations across locations. The interrupted operation of factories in Bac Giangand Bac Ninh has certainly affected the supply chains of some electronic products that could translate into lower production over the nextfew weeks. 
In fact, overall industrial productionindex in Bac Giang dropped by 40.9 percent(m/m) and 33.3 percent (y/y) in May 2021, whileits index for electronics manufacturing fell by 53.6 percent (m/m) and 46.9 percent (y/y). It is also worth noting that the monthly nationalindustrial production index is based on datacollected up to the 15th of the month, while theauthorities project the value for the second halfof the month.
Social distancing and mobility restrictionsamplified the decline in retail sales
After a brief rebound in April, retail sales droppedagain by 3.1 percent (m/m) in May (Figure 4). Thisdecline is due to the weakening of domesticdemand caused by the new restrictions imposedby the government to control the COVID-19outbreak. These restrictions had an unevenimpact across retail sub-sectors since the sales ofservices were affected more severely, contractingby 8.9 percent (m/m), than those of goods (downby 1.7 percent (m/m)).