Vietnam’s GDP growth forecast in 2021 has been revised down to 4.8% from the previous estimation of 6.6% due to economic pains associated with the current Covid-19 outbreak, but the country still remains among the fastest-growing economies in East Asia and the Pacific region.

The World Bank revealed the figure in its latest East Asia and Pacific Economic Update launched today [September 28], which puts a grim look on the region's economic prospects.

World Bank's forecast for East Asia and the Pacific region.

Except for China that is projected to grow 8.5% this year, the rest of the region is anticipated to grow by 2.5%, compared to the 4.4% forecast in WB’s April update. Employment rates and labor force participation have dropped, and as many as 24 million people will not be able to escape poverty in 2021.

“The economic recovery of developing East Asia and Pacific faces a reversal of fortune,” said World Bank Vice President for East Asia and Pacific Manuela Ferro. “Whereas in 2020 the region contained Covid-19 while other regions of the world struggled, the rise in Covid-19 cases in 2021 has decreased growth prospects for 2021. However, the region has emerged stronger from crises before and with the right policies could do so again.”

The damage caused by the resurgence and persistence of Covid-19 is likely to hurt growth and increase inequality over the longer term, the report noted.

Along with China and Indonesia, Vietnam has already surpassed pre-pandemic levels of output, but Cambodia, Malaysia, and Mongolia will only do so in 2022, and the Philippines, Thailand, and many Pacific Islands will remain below pre-pandemic levels of output even in 2023.

Part of the support came from the external environment when a continued high demand for electronics is driving export growth in Vietnam, the WB suggested.

Production at Sunhouse Group. Photo: Hai Linh

To further boost growth, WB called for Vietnam and other countries to continue reforming existing regulations for foreign investment in the services sectors, citing a 10% liberalization of FDI restrictions, as measured by the OECD FDI Regulatory Restrictiveness Index, could increase bilateral FDI stocks by an estimated average of 2%.

“And reforms could lead to an increase in the annual GDP growth rate by as much as 0.2 percentage points,” it added.

“Accelerated vaccination and testing to control Covid-19 infections could revive economic activity in struggling countries as early as the first half of 2022, and double their growth rate next year,” said East Asia and Pacific Chief Economist Aaditya Mattoo. “But in the longer term, only deeper reforms can prevent slower growth and increasing inequality, and impoverishing combination the region has not seen this century.”

Beyond containing Covid-19, a comprehensive strategy will be needed to boost growth and ensure it is inclusive. The report identifies accelerated technology diffusion as a possible silver lining of the crisis that could boost productivity, democratize education, and transform state institutions. However, complementary reforms are necessary.

Equipping firms with the skills to embed technology in their business must be accompanied by openness to trade and investment and by competition policies that strengthen incentives for firms to adopt new technology. Implementing long-delayed reforms in education to improve teaching quality and curriculum relevance could ensure wider access to the benefits of new learning technologies, according to the report.