On August 26, the World Bank released its latest report titled “Capital Markets Reaching New Highs,” expressing optimism about Vietnam’s economic future. The report cites the recovery in exports, tourism, consumer spending, and investment as reasons for this positive outlook, predicting an economic growth rate of 6.1% for 2024, with potential increases to 6.5% in both 2025 and 2026.

This forecast highlights Vietnam’s economic resilience and invites us to reflect on its economic performance over the past five years and what lies ahead. In the Southeast Asian economic landscape, Vietnam stands out as a rising star, drawing global attention. Let’s explore Vietnam’s journey of economic growth and transformation.

Reflecting on the Past: Demonstrating Economic Resilience

1. Resilience During the Pandemic

In 2020, the COVID-19 pandemic hit the global economy hard. Amid this crisis, Vietnam showed remarkable resilience. While many countries experienced negative growth, Vietnam managed to achieve a positive growth rate of 2.9%, making it one of the few economies that grew during the pandemic year.

This success was due to the Vietnamese government’s decisive and effective measures to control the virus. By enforcing strict border controls, widespread testing, and timely quarantines, Vietnam effectively curbed the spread of COVID-19. Additionally, the government rolled out several economic stimulus measures, including tax cuts, deferred tax payments, and low-interest loans to help businesses navigate the tough times.

As the global situation improved, Vietnam’s economy bounced back quickly. Despite challenges from the Delta variant in 2021, Vietnam still achieved a growth rate of 2.58%. By 2022, the economy saw a significant surge, growing by an impressive 8.02%. This growth exceeded expectations and positioned Vietnam as one of Asia’s fastest-growing economies. In 2023, Vietnam’s GDP growth rate reached 5.05%, showing a positive growth trend. This performance was regarded as an economic growth highlight among major countries and regions globally, positioning Vietnam as a crucial engine driving economic development in ASEAN.

Vietnam’s GDP in 2020-2023 and its growth rate comparison with ASEAN

Data Source: General Statistics Office of Vietnam, ASEAN Statistics Division, compiled by Vanzbon

2. A Magnet for Foreign Investment

Despite global economic uncertainties, Vietnam continues to be an attractive destination for foreign investors. In 2023, Vietnam attracted $36.6 billion in foreign direct investment (FDI), an increase of over 32% compared to 2022. Newly signed project investments totaled more than $20 billion, up 62.2%, while foreign investors’ equity contributions exceeded $8.5 billion, a year-on-year increase of 65.7%. These figures reflect international investors’ confidence in Vietnam’s economic future and underscore Vietnam’s vital role in the global supply chain restructuring.

Several factors contribute to Vietnam’s investment appeal. The country has a stable political environment and a continuously improving business climate. Vietnam’s ranking in the World Bank’s “Ease of Doing Business” index has steadily improved in recent years, with various reforms gaining investor approval. Additionally, Vietnam offers relatively low labor costs and a young workforce, which is attractive to labor-intensive industries. Furthermore, Vietnam’s strategic location near key nodes in the global supply chain allows companies to optimize production and logistics.

Notably, Vietnam is increasingly attracting high-tech investments. Major tech companies like Samsung and Intel have established large manufacturing bases in Vietnam. These investments bring capital and jobs and promote technology transfer, supporting Vietnam’s efforts to upgrade its industrial structure.

3. Manufacturing and Export: The Dual Engines of Growth

Manufacturing and export have long been the twin engines driving Vietnam’s economic growth. Industries like electronics, textiles, and footwear have grown significantly, becoming key pillars of the economy.

The rise of the electronics manufacturing sector is particularly noteworthy. Vietnam has emerged as a major global hub for smartphone and electronic component production. In 2010, exports of mobile phones and parts accounted for just 3.2% of Vietnam’s total exports. However, from 2011 to 2021, the export value of these products grew by an average of 34% annually. By 2023, mobile phones and parts had become Vietnam’s second-largest export category, making it the world’s second-largest smartphone exporter after surpassing South Korea. Meanwhile, traditional industries like textiles and footwear continue to evolve, with many Vietnamese companies moving up the value chain.

On the export front, Vietnam has capitalized on the opportunities presented by the restructuring of global supply chains. Amid U.S.-China trade tensions, many multinational companies shifted part of their production capacity to Vietnam, boosting the country’s exports. In 2023, Vietnam achieved a merchandise trade surplus of $28 billion, a record high. The country is striving to balance its trade relations and reduce dependency on any single market, enhancing its economic resilience.

However, the rapid development of manufacturing and exports also brings challenges. Vietnam must consider how to enhance local companies’ positions in the global value chain and how to handle potential trade frictions.

4. Inflation Pressure: A Concern for the Economy

Despite its impressive growth, Vietnam faces inflationary pressures. From the second half of 2022 to 2023, inflation pressures increased significantly, with an average inflation rate of 3.25% in 2023. While this rate remains manageable, it has raised concerns among the government and economists.

Several factors contribute to inflationary pressures. Rising global commodity prices, supply chain disruptions, and loose monetary policies have all pushed prices upward. For a highly open economy like Vietnam, controlling inflation is both a challenge and a necessity. High inflation can erode economic growth and potentially cause social instability.

The Vietnamese government has taken steps to address inflationary pressures, such as tightening monetary policy moderately, strengthening market oversight, and stabilizing energy supplies. However, finding the right balance between maintaining high economic growth and controlling inflation will be a key challenge for Vietnam in the coming years.

Looking Ahead: Opportunities and Challenges

1. Potential for Sustained High Growth

Looking ahead, the World Bank’s growth forecast of 6.1%-6.5% reflects Vietnam’s substantial economic potential. This growth is likely to be driven by continued foreign direct investment, improving infrastructure, a young and increasingly skilled workforce, and Vietnam’s growing role in the global value chain.

To achieve this growth, the Vietnamese government must continue to enhance the business environment to attract high-quality investments. This includes simplifying administrative procedures, strengthening intellectual property protection, increasing policy transparency, and more. Additionally, Vietnam needs to invest more in education and vocational training to improve labor quality and meet the demands of industrial upgrading.

It’s worth noting that Vietnam is actively fostering innovation and entrepreneurship. Innovation hubs are being developed in cities like Ho Chi Minh City and Hanoi to attract both local and international talent. If these efforts succeed, they could inject new dynamism into Vietnam’s economy.

2. Digital Economy: A New Growth Driver

The digital economy is becoming a significant growth area for Vietnam. Over the next five years, sectors like e-commerce, fintech, and digital payments are expected to grow rapidly.

According to the General Statistics Office of Vietnam, by the end of 2023, Vietnam’s population had surpassed 100 million, reaching 100.3 million, with a significant proportion being young people. This provides a fertile ground for the digital economy’s development. It is estimated that Vietnam’s digital economy could reach $52 billion by 2025. The government is also actively promoting digital transformation, with the “Digital Vietnam” strategy accelerating digitalization across various sectors.

However, the development of the digital economy also faces challenges. Issues such as improving digital infrastructure, spreading digital skills, and ensuring data security require joint efforts from both the government and businesses. Moreover, balancing innovation encouragement with consumer protection is a challenge that needs careful consideration.

3. Green Transformation: The Path to Sustainable Development

Vietnam has committed to achieving carbon neutrality by 2050, a goal that will drive the growth of green industries such as clean energy and sustainable agriculture, providing new momentum for economic growth.

In the energy sector, Vietnam is actively developing solar and wind energy. Offshore wind projects in the Mekong Delta and the central coastal regions are gaining attention. Meanwhile, Vietnam is promoting green transformation in industrial parks, encouraging companies to adopt clean production technologies.

In agriculture, Vietnam is combining traditional farming with modern technology to develop smart agriculture. This approach not only increases agricultural efficiency but also reduces environmental impact and enhances the international competitiveness of agricultural products.

However, achieving a green transformation requires significant investment and technological innovation. Balancing economic growth with environmental protection and securing financing for green projects are challenges Vietnam must address. International cooperation will be vital in this process, and Vietnam should actively seek technological and financial support.

4. Regional Integration: A New Era of Open Cooperation

As a member of the RCEP (Regional Comprehensive Economic Partnership) and CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), Vietnam is actively participating in regional economic integration. This not only opens up new markets for Vietnamese businesses but also promotes industrial upgrading and enhances its position in the global value chain.

The implementation of RCEP brings new opportunities for Vietnam. As the world’s largest free trade agreement, it will help Vietnam integrate more effectively into regional supply chains, especially in electronics, textiles, and agricultural products. CPTPP provides Vietnam with access to high-standard international rules, helping to increase Vietnam’s institutional openness.

However, participating in regional integration also means that Vietnamese companies will face tougher competition. The government needs to develop comprehensive strategies to enhance local businesses’ competitiveness and protect national interests in an open environment.

5. Infrastructure Investment: Building Blocks for Long-Term Growth

The World Bank report suggests that increasing public investment can help resolve bottlenecks in energy, transportation, and logistics, laying the groundwork for long-term growth. Vietnam needs to continue focusing on infrastructure development over the next five years.

In transportation, Vietnam is progressing with several large-scale projects. Projects like the North-South high-speed railway, new airports, and deep-water ports will significantly improve Vietnam’s transport conditions and boost logistics efficiency. In the energy sector, alongside renewable energy development, Vietnam is expanding its power grid to enhance power supply stability.

These infrastructure investments not only create jobs and stimulate domestic demand but also lay the foundation for future economic growth. However, ensuring investment efficiency and balancing government spending with market forces require careful planning.

6. Financial System: A Potential Vulnerability

The World Bank report also highlights the need to address rising non-performing loans in the banking sector. Strengthening financial regulation and enhancing the banking sector’s resilience to risks will be critical in the coming years.

Although Vietnam’s financial system has made significant progress recently, structural issues remain. High banking concentration, a large share of state-owned banks, and insufficient financial market depth are areas that need improvement. Moreover, with the rise of financial technology, balancing innovation encouragement with risk prevention is a new challenge for regulators.

Vietnam is pushing forward with financial system reforms, including banking restructuring, capital market development, and regulatory framework improvements. If successful, these efforts will provide strong support for Vietnam’s sustainable economic growth.

7. Global Economic Uncertainty: External Challenges

As a highly open economy, Vietnam is not immune to global economic fluctuations. Slowing global growth, rising geopolitical tensions, and increasing trade protectionism could all impact Vietnam’s economy.

To navigate these challenges, Vietnam needs to adopt a diversified approach. First, continue economic diversification to reduce reliance on a single market or industry. Second, build economic resilience to better withstand external shocks. Third, actively engage in global economic governance to support the multilateral trading system.

Additionally, Vietnam should closely monitor global supply chain restructuring trends, seize opportunities in the new wave of industrial transfer, and guard against potential risks.

Conclusion

Vietnam’s economy has demonstrated remarkable resilience and adaptability when facing global challenges. From rapid recovery during the pandemic to robust manufacturing growth, from continuous foreign investment attraction to steady export expansion, Vietnam’s economic performance has been impressive.

Looking ahead, despite the challenges, Vietnam’s economic outlook remains positive. The growth of the digital economy, the firm push for green transformation, and deep engagement in regional integration all provide new momentum for sustained economic growth. If structural issues are effectively addressed and reforms and opening up continue, Vietnam is likely to maintain strong growth over the next three years, further solidifying its position as an emerging economic power in Southeast Asia.