Vietnam’s economic growth target for this year is 6.5%. However, the economy expanded a mere 3.72% in the first half of the year, short of the expected 6.2%.

In the face of the global economic slowdown, Vietnam must rely on internal strengths as the main driver for growth in the second half of the year. While the 6.5% target may not be feasible, a growth rate of around 6% is achievable with appropriate policies and when the public and corporate sectors have confidence. Global economic outlook shows positive signs The World Bank’s Global Economic Prospect report in June 2023 projects global economic growth of 2.1% this year, which is 0.4% higher than the previous forecast in January 2023. The report also indicates higher growth rates for advanced economies and emerging markets compared to the previous report. The United States and China, the world’s two largest economies, also have more positive growth forecasts. The United States’ growth rate was revised upward by 0.6% to 1.1%, while China’s growth rate was revised upward by 1.3% to 5.6%. Similarly, the Organization for Economic Cooperation and Development (OECD) has an optimistic outlook, projecting global economic growth at 2.7% this year. The growth rates for countries in the OECD are forecasted at 1.4%, with the United States at 1.6%, the Eurozone at 0.9%, and China at 5.4%. Despite the more positive economic outlook, high inflationary pressures have forced central banks to adopt cautious policies, particularly in terms of monetary tightening. The International Monetary Fund (IMF) recently advised the U.S. Federal Reserve (Fed) and other central banks to maintain high and longer interest rates, despite a cooling down of inflation. In the United States, the labor market is also facing challenges, with shortages in several industries and trades. Recommended solutions and Vietnam’s situation Given the economic slowdown and high inflation, the general advice revolves around three main solution groups: continued monetary tightening, fiscal policy oriented toward purchasing power support, and increased spending to support growth along with structural reforms to boost supply. Vietnam is well-positioned in terms of effective inflation control, with the average consumer price index (CPI) in the first half of 2023 at 3.29% and core inflation at 4.74%. The State Bank of Vietnam has already implemented four cuts in policy rates since the beginning of the year. The Government has started implementing supportive policies, including reducing the value-added tax and increasing the base salary. Government spending and investment are significant drivers of growth, with a particular focus on public investment projects. During the economic slowdown, there is a need to address long-standing issues and improve the system, especially in terms of reducing administrative burdens on businesses. This can be achieved by streamlining administrative procedures, which are acceptable during favorable economic conditions but become heavy burdens during challenging times. Boosting confidence in the economy As the second half of the year relies on internal strengths as the growth driver, it is crucial not to place all spending and investment responsibilities on the Government. The private sector’s spending and investment are vital for growth, with the Government playing a catalytic role. To encourage increased spending and investment from individuals and businesses, confidence in the economic outlook is essential. When people feel secure in their jobs and expect income growth, and businesses anticipate improved revenue and profit, they are more likely to increase spending and investment. However, the difficulties experienced in 2022 have made people and businesses more cautious and concerned this year. Gloomy reports on the economic outlook released at the end of last year and early this year have further reinforced pessimism. Since the second half of 2022, many businesses and individuals have adopted defensive positions, reduced investments, and increased holdings of safe assets. Despite these challenges, economies always experience new developments and changes. With inflation cooling down in major economies and effective monetary tightening, there are more positive signs in the economy after the first six months. There is a growing consensus that the worst will soon be over. Therefore, to enhance confidence among people and businesses, it is crucial to provide fast and timely information about domestic and global economic updates. Government support policies should be implemented promptly and with high feasibility to avoid a significant gap between policy and reality, which could further erode confidence.