The country’s macroeconomic stability continues, enabled by easing inflation, strengthening external accounts, and stabilizing the foreign exchange market. Real GDP is projected to grow at moderate rate of 5.4 % in 2014, supported by continued foreign direct investment flows and strong manufacturing exports.

But domestic demand in Vietnam remains weak on account of subdued private sector confidence overleveraged SOEs, high non-performing loans of commercial banks, and narrowing fiscal space.

Vietnam faces several challenges on competitiveness. Reenergizing medium-term growth will require renewed attention on a number of structural reforms – with emphasis on restructuring the country’s state owned enterprises and banking sector and removing barriers to domestic private investment.

“Projected growth of 5.4 % is higher than for many of the countries in the region and the world, however it is still below Vietnam’s potential,” says Victoria Kwakwa, WB Country Director for Vietnam. 

“In the short run, the subdued economic growth is linked to soft domestic demand. But longer-term prospects will depend on whether Vietnam can quickly address structural problems that can enhance the economic efficiency and competitiveness of the country.” she said.

Regarding China’s illegal placement of oil rig Haiyang 981 in Vietnam’s exclusive economic zone (EEZ), potentially adversely affecting Vietnam’s potential economic growth in the future, Ms. Kwakwa said no effect has been seen so far and trade exchanges between Vietnam and China were continuing as usual. She hailed the Vietnamese government’s timely measures to support business affected by the riots protesting China, adding that this reflects the Vietnamese government’s due attention and efforts to protecting the safety of foreign investors.

The report has a special focus on inequality in Vietnam, as the issue has been a topic of public concern in Vietnam and around the world. Social movements linked to concerns about inequality have unfolded in the wake of the 2008 global financial crisis, and perceptions of rising inequality were among the drivers of the Arab Spring revolutions of 2011.

According to Taking Stock- a semi-annual publication from the WB, concerns over inequality have arisen despite Vietnam’s rapid long-term growth with only modest increases in income inequality. Mean incomes of the bottom 40 % of the income distribution grew at 9 % annually over the 2 decades up to 2012, a tremendous example of shared prosperity. Results from a new perceptions survey reported in the Taking Stock show concern about inequality in Vietnam, especially among urban residents.

“Popular concern about inequality and demand for policy responses is likely to grow over time as more Vietnamese move to cities and are exposed to visible differences in welfare. There is already substantial demand for redistributive social policy to narrow inequalities in Vietnam; this demand is likely to persist and to rise as Vietnam continues to urbanize.” according to Gabriel Demombynes, one of the report’s authors.