WB: Vietnam's growth is forecast to reach 4.7% in 2023

World Bank experts forecast that Vietnam's economic growth will reach 4.7% in 2023. After that, growth momentum will recover to 5.5% in 2024 and 6% in 2025. .

 The World Bank held a press conference to announce the August Economic Report, August 10. (Photo: PV/Vietnam+)

Vietnam's economic growth, after reaching a rate of 8% in 2022, will decline sharply in the first half of 2023, due to low external demand and weaker domestic demand. However, the economy will accelerate again in the last months of the year and maintain in the following years.

This is the comment made by a representative of the World Bank at the press conference announcing the August Economic Report, on August 10.

Demand is the main driving force in growth

According to the report, Vietnam's GDP growth in the first half of the year only reached 3.7% (compared to the same period last year) and much lower than the 6.4% increase in the first 6 months of 2022.

Ms. Dorsati Madani, senior economist at the World Bank, said the cause of this decline is a sharp decrease in external demand. This is reflected in export turnover decreasing by 12% over the same period. On that front, domestic demand has leveled off as the “low start” effect of the post-COVID-19 recovery period has reduced. Moreover, consumer confidence is also gradually weakening, reflected in the spending growth rate down to 2.7% over the same period.

Emphasizing that the decrease in total demand was reflected in the manufacturing sector (total supply), Ms. Dorsati cited the industrial segment, which recorded a decrease in contribution to growth of 0.4 percentage points in the first half of the year. The impact of the “shock” on export demand was further exacerbated, as persistent power shortages affected the North in May and June, disrupting economic activities with estimated losses in level of 0.3% of GDP.

In addition, a survey of 10,000 businesses in the first four months of the year by the Private Economic Development Research Board (WB) also showed that 60% of businesses said revenue had decreased by at least 20%; 59% of businesses reported a decrease in orders, 71% had to cut at least 5% of their workforce. For example, the Southeast region - one of the key export areas - saw the number of people approved to receive unemployment benefits skyrocket by nearly 62% in the second quarter.

"Even though demand has slowed down, this is still the main driving force for growth in 2023. It is expected that private consumption will stand firm with an increase rate of 6% (compared to the same period in 2022) and contribute 3.4% percentage points for GDP growth," Ms. Dorsati said.

On that basis, World Bank experts forecast that Vietnam's economic growth will reach 4.7% in 2023. After that, the growth momentum will recover to 5.5% in 2024 and 6% by 2025.

In addition, the CPI is expected to increase slightly from an average of 3.1% in 2022 to an average of 3.5% in 2023. The cause is slowing growth and the policy of reducing value-added tax rates. an increase from 10% to 8% was implemented in the second half of the year. Accordingly, CPI inflation will continue to stabilize at 3% in 2024 and 2025 (based on the expectation that energy and commodity prices will stabilize).

Domestic and foreign risks increase

Looking ahead, the World Bank report said that Vietnam will face risks both domestically and internationally. In general, developed economies and China will grow lower than expected and continue to reduce demand for Vietnam's export sector.

Furthermore, lingering uncertainties in financial markets are likely to fuel tensions in the global banking sector. Faced with the above comments, investors will likely develop a mentality of avoiding risks and discouraging investment (including FDI investment in Vietnam). On the other hand, escalating geopolitical tensions and natural disasters could increase risks for Vietnam (including through escalating food and fuel prices).

Domestically, the financial sector is facing increasing risks and vulnerabilities, requiring close monitoring and innovation.

According to Ms. Carolyn Turk, World Bank Country Director in Vietnam, the domestic economy is facing internal and external challenges. Therefore, to promote economic growth, the Government can support aggregate demand through effective public investment, thereby creating jobs and stimulating economic activity.

"In addition to short-term support measures, the Government should not ignore structural institutional reforms, including in the energy and banking sectors, as these sectors are imperative for long-term growth term,” Ms. Carolyn Turk said.

Regarding policy recommendations, World Bank experts believe that fiscal space is still abundant, so it is necessary to play a leading role and ensure that the 2023 investment budget is deployed significantly better. In addition, the fully implemented planned public investment budget will increase public investment to 7% of GDP in 2023, creating fiscal momentum to support aggregate demand at 0.4% of GDP.

In addition to public investment, support policies need to focus on workers and households affected when the economy slows down, through improving the operational efficiency of the social security system, This is also a way to support aggregate demand.

To do that, Ms. Carolyn believes that the competent authorities need to improve the approach to selecting subjects and the mechanism for providing support in the social security system, becoming a flexible tool to support people. vulnerable people when faced with economic shocks.

In addition, experts recommend that fiscal policy support should be implemented in parallel with monetary policy easing, but it should be noted that there is not much room left for further easing. Currently, credit demand is low even though interest rates have decreased. Therefore, cutting interest rates further may not bring the desired effect to promote credit growth. Besides, cutting interest rates will increase interest rate differentials with global markets, potentially putting pressure on exchange rates.

To help improve productivity and sustainability of economic growth, World Bank experts believe that Vietnam needs to continue to reform and reduce the burden of administrative regulations for businesses. And, re-implementing State-owned enterprise reform to create a catalyst to attract private sector participation.

“Promoting financial inclusion is a way to empower individuals and businesses to participate more fully in economic activities, thereby increasing their contributions to sustainable growth. In addition, improving the resilience of export products in the medium term will help mitigate risks related to external shocks. Diversifying products and export destinations is a way to reduce dependence on specific markets and products, and improve the economy's resilience to global economic fluctuations. World Bank representative emphasized./.

According to Vietnam+