Vietnam’s economy experienced a strong rebound in 2022, with growth reaching 8.0 per cent, exceeding its average rates of 7.1 per cent from 2016 to 2019. However, reflecting domestic and external headwinds, gross domestic product (GDP) growth is expected to slow to 6.3 per cent in 2023.

The public sector’s contribution to growth was limited due to weak execution of public investment programmes. While employment recovered to pre-COVID-19 levels in 2022, weaker global demand led to slowing orders and exports in the fourth quarter (Q4) of 2022, and to renewed labour market pressures.

Vietnam’s financial sector experienced increased pressure in 2022 while fiscal balances are estimated to register a surplus, according to the Vietnam Economic Update, March 2023, released by the World Bank.

“Given softer external demand, contribution of net exports will weigh on growth. The economy is expected to benefit from the partial implementation of the capital investment of the 2022-2023 Economic Support Program. An agile monetary policy—closely coordinated with fiscal policy objectives—would help keep domestic inflation under control,” the World Bank report said.

Risks to the outlook are broadly balanced. On the downside, weaker than expected growth in Vietnam’s major export markets—the US, China, and the eurozone—could affect export prospects. Potentially higher inflation could affect domestic demand. Further tightening of global financial conditions could affect Vietnam’s financial sector, which suffers from weaknesses in the balance sheets in the corporate, banking, and household sectors, affecting domestic investor and consumer sentiment, and from incomplete reforms.

Implementation challenges could also hamper the execution of the planned public investment programme. On the upside, improved growth prospects in China, the US, or European Union and stronger than expected global demand 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. 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 synchronised to ensure that support to the economy and macroeconomic stability are achieved effectively,” said Carolyn Turk, World Bank Country director for Vietnam.

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