Streamlining administrative procedures and removing regulatory hurdles could help promote activities and investments for economic growth, the World Bank said in its June edition of Vietnam Macro Monitoring.
The bank also urged Vietnam to identify workers and families impacted by the slowdown in the manufacturing sector and offer support via the social protection system.
Reviewing the economy in the first five months of the year, the bank pointed out industrial production had continued to weaken, trade was still in contractionary territory, foreign direct investment (FDI) slowed, and credit growth continued to decelerate, indicating weak demand.
The Index of Industrial Production (IIP) recovered 0.1% year-on-year in May, weaker than the 0.5% gain in April, according to Vietnam's General Statistics Office. The S&P Global's manufacturing purchasing managers index (PMI) remained in contractionary territory for a third month in a row, falling to 45.3 in May from 46.7 in April.
Credit growth decelerated from 9.2% in April to 9% in May, reflecting slack credit demand amid continued weak manufacturing and export activities, and low demand from the real estate and equity markets.
According to the WB, continued weak external demand and global uncertainties are adversely affecting the economy, leading to a contraction of exports and imports and a slowdown in industrial production. Additionally, Vietnam’s northern region has experienced power shortage and if the problem is not addressed promptly, the economy may be further hit.
Domestic consumption, indicated by retail sales, remains robust and at a comparable level to pre-pandemic figures, the WB noted. Meanwhile, credit growth has continued to slow, reflecting weak demand. If global finance conditions tighten more, external demand may weaken further, the bank added.
As inflation is likely to be tamed, the country’s central bank has eased monetary policies to support the economy. However, monetary policy authorities should closely monitor whether the divergence in monetary policies between Vietnam and other countries is creating pressure on capital flows and the exchange rate, itk suggested.
The WB also recommended that accelerated public investment disbursement would support aggregate demand and the economy in the short run, while prioritizing investments in digital and green technologies, infrastructure, and human capital to boost sustainable long-term development.
The World Bank has cut its Vietnam’s GDP growth forecast this year to 6% in its June edition of “Global Economic Prospects”, but the figure remains among the highest in Asia, on par with the Philippines. Previously, the bank estimated Vietnam’s 2023 GDP growth at 6.3%.