American consumers face higher prices from the prolonged Covid lockdown in Vietnam after a dramatic surge in infections in the third quarter, according to Bank of America (BoA).
Labour-intensive manufacturers producing goods such as apparel and footwear are struggling to restore their businesses after the lockdown, said analysts led by Mohamed Faiz Nagutha in a November 15 report. Apparel and footwear prices could increase by 5% in the first half of next year and that may boost personal consumption expenditure inflation by 15 basis points, and shave up to 10-20 basis points off consumer spending, they said.
“Just how quickly production can be recovered in Vietnam will have major implications for global supply chains – especially in the apparel and footwear sectors where Vietnam’s global market share has been rising over the past decade,” they said
A significant portion of the world’s electronics supply chain, such as Samsung smartphone production, has also shifted from China to Vietnam, the report said.
Too Optimistic
The analysts said that while notable progress had been made on the vaccination front in recent months, and some companies were hoping for a return to full capacity by the end of the year, there were reasons why such hopes may be too optimistic.
That’s because Vietnam’s vaccination rate is still only around 30% – among the lowest in ASEAN – and many apparel and footwear producers are in the southern provinces, where the rate of reopenings has been slower than in the north.
“Current factory operation rules are still very tight, complicated and different across provinces,” said the report. “This will likely lead to delays and productivity losses and also hinder migrant workers’ return to work.”
They also anticipated that other factors such as port congestion, rising input prices and labour shortages would hamper a full recovery to previous production levels.
• By Jim Pollard
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