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World Bank: Vietnam’s Economic Growth Depends on ‘Greening the Trade Sector’

Vietnam’s economic recovery is likely to accelerate in 2022, with gross domestic product (GDP) expected to rise to 5.5 percent from 2.6 percent in the year just ended, according to the World Bank’s economic update “Vietnam Taking Stock.”

Assuming the Covid-19 pandemic will be brought under control at home and abroad, the report forecasts that Vietnam’s services sector will gradually recover as consumer and investor confidence firms, while the manufacturing sector benefits from steady demand from the United States, the European Union, and China.

U.S. apparel imports from Vietnam fell 10 percent in November from a year earlier to 282.05 million square meter equivalents (SME), continuing am uneven pattern in the last few months following Covid-related factory closures. For the year to date, shipments from Vietnam were up 15.34 percent to 4.03 billion SME. Vietnam’s footwear shipments to the U.S. posted an 18.4 percent year-to-date increase to 477.28 million pairs.

The World Bank said the outlook, however, is subject to serious downside risks, particularly the unknown course of the pandemic. Outbreaks of new variants may prompt renewed social distancing measures, dampening economic activity.

Weaker-than-expected domestic demand in Vietnam could also weigh on the recovery. In addition, many trading partners are facing dwindling fiscal and monetary space, potentially restricting their ability to further support their economies if the crisis persists, which in turn could slow the global recovery and weaken demand for Vietnamese exports, the report noted.

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Careful policy responses could mitigate these risks, the report said. Fiscal policy measures, including temporary reduction of VAT rates and more spending on health and education, could support aggregate domestic demand. Support for affected businesses and citizens could be more substantial and more narrowly targeted, and social protection programs could be more carefully targeted and efficiently implemented to address the severe and uneven social consequences of the crisis, it noted.

This edition of Taking Stock contended that “greening the trade sector” should be a priority. Trade, while an important driver of Vietnam’s strong economic growth over the past two decades, is carbon-intensive, accounting for one-third of the country’s total greenhouse gas emissions.

While Vietnam has started to decarbonize activity associated with trade, more needs to be done to respond to mounting pressures from main destination markets, customers and multinational companies for greener products and services.

“Trade will be key component of Vietnam’s climate actions in the years to come,” said Carolyn Turk, World Bank country director for Vietnam. “Promoting greener trade will not only help Vietnam follow through on its pledge to reach net zero emission in 2050, but will also help it keep its competitive edge in international markets and ensure trade remains a critical income and job generator.”

The report recommends that the government act on three fronts–facilitate the trade of green goods and services, incentivize green foreign direct investment, and develop more resilient and carbon-free industrial zones.