The Asian Development Outlook (ADO) 2017 forecasts Vietnam’s economy to grow by 6.5 percent in 2017 and 6.7 percent in 2018, as a result of rising activity in the manufacturing, construction, wholesale and retail trade, banking and tourism sectors.

The report notes that continued record levels of foreign direct investment will boost domestic manufacturing while at the same time helping to lift Vietnam’s export earnings even though global and regional trade flows will remain depressed. Vietnam’s rapidly expanding middle-class, which is expected to double in size by 2030 to 33 million, will also help to push up consumer spending and boost retail activity.

Agricultural output is expected to pick up modestly in 2017 given the outlook for higher global food prices and a return to more normal weather. However the report highlights that the sector continues to underperform relative to the rest of the Vietnamese economy, dragging down overall growth.

According to ADB Country director for Vietnam, Eric Sidgwick, agriculture has been a significant driver of growth, poverty reduction, food security, and exports since the government began reforming the sector in the late 1980s. However, in recent years, in the face of growing international competition and low domestic labour productivity, the sector’s growth has slowed to an average of just 2 percent per annum since 2011.

The report highlights that agriculture output per worker in Vietnam is one-third of Indonesia’s and less than half of Thailand’s and the Philippines’. The report also emphasizes that as Vietnam recovers from its most severe drought in a decade, boosting growth in the agriculture sector will be vital for Vietnam to achieve its aspirations of becoming an upper-middle income country.

“While Vietnam continues to address the worsening impacts of climate change on agriculture, deeper reforms and higher investment in the sector will be critical to boost agricultural productivity and long-run growth that is inclusive and environmentally sustainable,” Sidgwick said.

The report stresses that to transform agriculture a number of major policy challenges will need to be addressed – including introducing greater competition into agricultural supply-chains and postharvest processing, developing rural infrastructure to support higher-value adding cash crops, adopting more sustainable natural resource management practices, and better integrating climate change considerations into policy making processes.