Hanoi, March 13, 2023—Vietnam’s economic growth is projected to ease to 6.3 percent in 2023 from a robust 8 percent last year, as services growth moderates and higher prices and interest rates weigh on households and investors, according to the World Bank’s latest Taking Stock report released today.
Growth is expected to pick up to 6.5 percent in 2024 as the economies of Vietnam’s main export markets gain strength, the report says.
The outlook for Vietnam reflects heightened uncertainty in the global economy. Downside risks include weaker-than-expected growth in Vietnam’s major export markets, which include the United States, China and the eurozone, tightening financial conditions, higher domestic inflation, weaknesses in the balance sheets of corporate, banking and household sectors, and financial sector vulnerabilities.
Domestic and external headwinds warrant increased vigilance and data-driven policy responses, the report says. These include managing the trade-off between growth and inflation and strengthening the supervisory framework for the financial sector. On the upside stronger than expected recovery of global growth could lift exports and hence growth above the baseline projection.
“Vietnam has the fiscal space to implement measures to boost growth, unlike many other countries,” said Carolyn Turk, World Bank Country Director for Vietnam. “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 Vietnam’s services sector identifies four key reforms that could unlock the potential of a sector that can deliver substantial employment and added value. For Vietnam to achieve its objective of becoming a high-income economy by 2045, it should more effectively leverage its diversified services sector to secure more sustained productivity growth, according to the analysis, “Harnessing the potential of the services sector for future growth.” This would entail undertaking reforms to enhance services sector productivity and its cross-sectoral contributions to manufacturing and agriculture productivity growth.
Even though Vietnam’s services sector has grown as a share of the economy, employed a greater share of workers, and seen its labor productivity increasing in the decade before 2019, Vietnam's performance in this area lags peer countries such as Malaysia, the Philippines, and Indonesia.
Exports of knowledge-rich services known as “global innovator services” constitute only 9 percent of total services exports, and only 6.4 percent of total employment in the services sector is in this sub-sector, which 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 is room for improvement through appropriate policy actions.
To accelerate growth of this sector, Vietnam could consider:
- Reducing restrictions to services trade and foreign investment in this area and implementing reforms to enhance competition and access to finance for domestic firms;
- Encouraging firm-level product and process innovation and technology adoption;
- Strengthening skills and capabilities of workers and managers;
- Focusing on services that can promote further growth of other sectors, particularly manufacturing.
Taking Stock is the World Bank’s bi-annual economic report on Vietnam.