Growth is expected to pick up to 6.5% ahead in 2024 as the economies of the country’s main export markets gain strength, the report says.
The outlook for the nation reflects the heightened uncertainty that exists in terms of the global economy. Downside risks include weaker-than-expected growth in major Vietnamese export markets such as the United States, China and the Eurozone; tightening financial conditions; higher domestic inflation; weaknesses in the balance sheets of corporate, banking, and household sectors, along with financial sector vulnerabilities.
Domestic and external headwinds therefore warrant increased vigilance and data-driven policy responses, the report outlines.
These include managing the trade-off between growth and inflation, as well as strengthening the supervisory framework for the financial sector. On the upside the stronger than expected recovery of global growth could lift exports and lead to growth above the baseline projection.
“Vietnam has the fiscal space to implement measures to boost growth, unlike many other countries,” said Carolyn Turk, country director for Vietnam of the WB, adding, “Effective implementation of priority public investments is key to support growth, both in the short-term and in the longer-term. Also, fiscal and monetary policies must be synchronized to ensure that support to the economy and macroeconomic stability are achieved effectively.”
The report’s special section on the Vietnamese services sector identifies four key reforms that could unlock the potential of a sector that can deliver substantial employment and added value. For the nation to achieve its objective of becoming a high-income economy by 2045, it should more effectively leverage its diversified services sector as a means of securing more sustained productivity growth. Indeed, according to the analysis it should seek to “Harness the potential of the services sector for future growth”.
This would entail undertaking reforms aimed at enhancing the services sector’s productivity and its cross-sectoral contributions to manufacturing and agriculture productivity growth.
Despite the local services sector growing as a share of the economy, employing a greater share of workers, and enjoying labour productivity increasing in the decade before 2019, Vietnamese performance in this area lags behind peer countries such as Malaysia, the Philippines, and Indonesia.
Exports of knowledge-rich services known as “global innovator services” constitute only 9% of total services exports, whilst only 6.4% of total employment in the services sector is in this sub-sector. This includes information and communications technology, finance, and professional services, which are among the most productive services areas in the economy. The small scale of firms, restrictions to services trade, low technology adoption, and scarcity of inter-sectoral linkages affect productivity, suggesting that there remains room for improvement through appropriate policy actions.
As a means of accelerating growth of this sector, the country could consider reducing restrictions to services trade and foreign investment in this area, thereby implementing reforms to enhance competition and gaining access to finance for domestic firms.
This is addition to encouraging firm-level product and process innovation and technology adoption, strengthening skills and capabilities of workers and managers, as well as focusing on services that can promote further growth of other sectors, particularly manufacturing.
