Economic growth in Vietnam is forecast to decelerate to 6.3% this year from 8% in 2022, according to the latest report by the World Bank, citing internal and global headwinds.

“The near-term outlook remains favourable but subject to risks. Domestic demand is expected to be affected by higher estimated inflation (4.5% average) in 2023, which may erode household purchasing power. Rising interest rates may weigh on private investment,” the report stated.

According to the World Bank’s Country Director in Vietnam, Carolyn Turk, the country has the fiscal space to implement measures to bolster growth, unlike many other nations: “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,” she said.

The service sector is the largest in Vietnam’s economy, rising from 40.7% of the GDP in 2010 to 44.6% in 2019. In addition, employment within the sector also increased from 29.6% in 2010 to 35.3% in 2019. As the largest employment source, it has absorbed a considerable part of the workforce from the agriculture sector.

Nevertheless, labour productivity and efficiency within the country’s service sector is still below other nations, at $5,000 per worker in 2019, compared to $20,900 in Malaysia, $9,300 in the Philippines and $7,300 in Indonesia, Vietnam Net reports.

Furthermore, the service sector could play a key role in supporting Vietnam’s sustainable productivity growth, and reaching the goal of becoming a high-income economy by 2045, says World Bank senior economist Dorsati Madani. 

She added that removing trade and foreign investment barriers within the sector should be made a priority, as well as introducing reforms to boost competition and access to finance for domestic businesses.