Vietnam’s economic recovery is likely to accelerate in 2022 as GDP growth is expected to rise to 5.5% from 2.6% in the year just ended.

Mechanics production at Tam Hop company in Soc Son District, Hanoi. Photo: Viet Linh

World Bank’s Senior Economist Dorsati Madani revealed the forecast at the online launch of the Taking Stock Report on January 13.

Such a growth rate, however, remains lower compared to the 6.5-7% target set by the Government, as well as that of the HSBC (6.5%), Standard Chartered (6.7%), and Fitch Solutions (7%).

Under the report, assuming the Covid-19 pandemic will be brought under control at home and abroad, the forecast envisions that Vietnam’s services sector will gradually recover as consumer and investor confidence remains firm, while the manufacturing sector benefits from steady demand from the US, EU, and China.

The fiscal deficit and debt are expected to remain sustainable, with the debt-to-GDP ratio projected at 58.8%, well below the statutory limit.

“The outlook, however, is subject to serious downside risks, particularly the unknown course of the pandemic,” said Madani.

According to Madani, outbreaks of new variants may prompt renewed social distancing measures, dampening economic activity. Weaker-than-expected domestic demand in Vietnam could weigh on the recovery.

In addition, many trading partners are facing dwindling fiscal and monetary space, potentially restricting their ability to further support their economies if the crisis persists, which in turn could slow the global recovery and weaken demand for Vietnamese exports.

“Careful policy responses could mitigate these risks,” she added. Fiscal policy measures, including temporary reduction of VAT rates and more spending on health and education, could support aggregate domestic demand.

Support for affected businesses and citizens could be more substantial and more narrowly targeted. Social protection programs could be more carefully targeted and efficiently implemented to address the severe and uneven social consequences of the crisis. Heightened risks in the financial sector should be closely monitored and addressed proactively.

Referring to the country’s large-scale monetary-fiscal support worth up to VND350 trillion (US$15.4 billion), WB Lead Economist and Program Leader for Vietnam Jacques Morisset noted this shows the country’s proactive stance in pushing for recovery in the post-pandemic period.

Morisset expected higher state spending would stimulate economic growth while saying this upcoming support package may contribute for Vietnam to reach the high-income country group in the 2045-2050 period.

Trade as key component for Vietnam’s climate actions

Entitled “No time to waste: The Challenges and Opportunities of Cleaner Trade for Vietnam,” this edition of Taking Stock argues that greening the trade sector should be a priority. Trade, while being an important driver of Vietnam’s remarkable economic growth over the past two decades, is carbon-intensive —accounting for one-third of the country’s total greenhouse gas emissions — and polluting.

While Vietnam has started to decarbonize activity associated with trade, more needs to be done to respond to mounting pressures from main destination markets, customers, and multinational companies for greener products and services.

“Trade will be a key component of Vietnam’s climate actions in the years to come,” said Carolyn Turk, World Bank Country Director for Vietnam. “Promoting greener trade will not only help Vietnam follow through on its pledge to reach net zero-emission in 2050 but will also help it keep its competitive edge in international markets and ensure trade remains a critical income and job generator.”

The report recommends the Government act on three fronts: facilitate the trade of green goods and services, incentivize green foreign direct investment, and develop more resilient and carbon-free industrial zones.