Vietnam’s GDP growth is forecast to expand 7.5% in 2022 and 6.7% in 2023. Photo: Vneconomy

Vietnam’s GDP growth is forecast to expand 7.5% in 2022 and 6.7% in 2023, with resilient manufacturing and a robust rebound in services serving as the driving forces for economic recovery, a World Bank (WB) economic update for Vietnam released on August 8 says.

The country’s economy expanded 5.2% in Q4 of 2021, and respectively 5.1% and 7.7% in Q1 and Q2 of 2022. Inflation is projected to average 3.8% over the year.

Carolyn Turk, WB Country Director for Vietnam, said that the bi-annual report “lays out a set of policy recommendations that could help mitigate the impact of these risks and make the economy more resilient going forward.”

Transforming higher education key to boosting productivity

Titled “Taking Stock: Educate to Grow”, the report underlines transforming the higher education system as the key to boosting the country’s productivity and achieving its development goals, in the context where the country re-emerges from the pandemic and into a challenging global environment.

Its co-author Dorsati Madani said that while Vietnam’s economic recovery had been relatively stable, not all sectors witnessed the same situation.

The impact on workers and households during the crisis was serious and lasting, with about 45% claiming lower incomes in December 2021 than the previous year.

The impact of the pandemic is still present with businesses reporting broad-based labour shortages as of March 2022, which were felt more acutely in services and manufacturing, and in the Ho Chi Minh City area.

This, in addition to growth slowdown or stagflation in main export markets, further commodity price shocks, continued disruption of global supply chains, or the emergence of new COVID-19 variants, are hindering Vietnam’s full recovery.

Statistics revealed that Vietnam’s population has an average 10.2 years of schooling, second only to Singapore among the Association of Southeast Asian Nations (ASEAN) countries.

Vietnam’s human capital index is 0.69 out of a maximum of 1, the highest among lower middle-income economies.

However, low skills relevance of the university graduates put the country in the bottom third of the 140 countries listed in the 2018 Competitiveness Index on skills relevance of university graduates.

Carolyn Turk, WB Country Director for Vietnam, said that the bi-annual report “lays out a set of policy recommendations that could help mitigate the impact of these risks and make the economy more resilient going forward.” Photo: VGP

A World Bank skills and enterprise survey published in 2019 also said that 73% of sampled Vietnamese firms report difficulties in recruiting employees with leadership and managerial skills, 54% with socio-emotional skills, and 68% with job-specific technical skills.

Focusing on tertiary and higher education, the WB’s report recommends reforming the education system to improve quality and access, and thus provide the necessary skills to the population.

Reforms to Vietnam’s higher education system could help support development objectives, the report says.

The increasing financial costs of pursuing higher education and the perception of diminishing economic returns from pursuing higher education have weakened demand.

While efforts to enhance the business environment are crucial to enabling job creation, policymakers should also take steps to reduce skill-mismatches and improve the quality of Vietnam’s labour force.

Turk said: “To sustain economic growth at the desired rate, Vietnam needs to increase productivity by 2-3% every year.

“International experiences have shown that higher worker productivity can be achieved by investing in the education system, as an important part of a basket of investments and reforms. A competitive workforce will generate much-needed efficiency for Vietnam in the long term.”

Standard Chartered: Vietnam’s economy to grow 6.7%

In the first half of 2022, Vietnam’s GDP grew 6.4%. Photo: VTV

Earlier, Standard Chartered forecast Vietnam’s GDP growth at 10.8% in the third quarter and 3.9% in the last quarter of 2022, contributing to annual expansion of 6.7%.

Strong economic recovery will be seen in the latter half of the year, especially when the tourism sector has reopened after a two-year shutdown, according to Tim Leelahaphan, Standard Chartered's economist for Thailand and Vietnam.

Economists at the bank also projected that the State Bank of Vietnam will keep the interest rate at 4% this year to assist businesses and the recovery process despite growing inflation. Retail sales will continue improving strongly, with 30.2% in July, compared to 27.3% in June.

Imports, exports and industrial production are predicted to respectively increase by 22.2%, 20% and 15% in July, compared to 20%, 16.3% and 11.5% in June. Meanwhile, Vietnam is likely to record a trade deficit this month, they said.

Inflation will accelerate to 3.6% in July from 3.4% in June - the fastest pace in two years, mostly due to supply pressure while demand is also gradually increasing, Leelahaphan noted, adding that inflation is still under control at present.

Recently, HSBC raised Vietnam’s growth outlook this year to 6.9% from the previous prediction of 6.6% but also downgraded the forecast for 2023 to 6.3% from 6.7%.

The Singapore-based United Overseas Bank (UOB) also revised up the country’s 2022 GDP growth forecast to 7.0% from 6.5%, assuming no further severe domestic disruptions from COVID-19, and growth of around 7.6% - 7.8% in the second half of the year.

Meanwhile, the Asian Development Bank (ADB) maintained its growth forecast issued in mid-April, at 6.5% for 2022 and 6.7% for 2023.

In the first half of 2022, Vietnam’s GDP grew 6.4% from the same period last year thanks to the expansion of 9.7% in the manufacturing sector and 6.6% in the service sector./.

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