A suitable growth model for Vietnam

Vietnam’s economy grew by 8.02 per cent in 2025. What were the main growth drivers, and what will be the prospects for these drivers in 2026?

Nguyen Ba Hung

Exports were the first major growth driver. In 2025, Vietnam’s total goods exports reached $475.04 billion, a 17 per cent increase year-on-year. Domestic exporters contributed $107.95 billion, down 6.1 per cent and representing 22.7 per cent of total export turnover, while foreign-invested firms accounted for $367.09 billion, up 26.1 per cent or 77.3 per cent of the total.

Despite the overall trade surplus of more than $20 billion, domestic enterprises witnessed a trade deficit of $29.43 billion, while foreign-invested companies recorded a surplus of $49.46 billion. This imbalance underscores how strongly foreign exporters performed compared to local enterprises.

In 2026, Vietnam’s export growth is expected to moderate for two reasons. Firstly, global economic growth is decelerating, which will dampen global import demand, amid rising competition among exporting countries. Secondly, the US tariffs, applied throughout 2026, which will pose significant challenges for Vietnamese exporters in this key market. In 2025, such tariffs were already high but only took effect from August.

Foreign direct investment (FDI) was the second major growth driver. The most meaningful is disbursed FDI, as it reflects the actually capital entering the economy – unlike registered capital, which is often disbursed gradually over several years.

Last year, disbursed FDI reached $27.62 billion, equivalent to about 5 per cent of GDP, marking its highest level in the last five years. The manufacturing and processing sectors continued to attract the most investment.

In recent years, FDI in Vietnam has been largely export-oriented, though it typically follows a time lag: current disbursements depend on registered capital from previous years. With relatively strong registered capital in 2024-2025, disbursement in 2026 is expected to remain positive, though growth will likely moderate. After an almost 10 per cent increase in 2025, the pace of disbursement in 2026 is projected to be lower.

Public investment remains the third key driver of growth. Although disbursement reached just over 80 per cent of the planned budget, it still posted a sharp year-on-year increase of 27 per cent.

However, while public investment will continue to be encouraged this year, it is unlikely to sustain rapid growth seen in 2025. Last year’s 27 per cent surge came after a relatively modest performance in 2024. Achieving a similarly high rate of disbursement in 2026 – on top of the already elevated base of 2025 – will therefore be a significant challenge.

Vietnam has set a growth target of 10 per cent or higher for 2026. Beyond the above-mentioned drivers, what other factors could spur on growth?

Two other key drivers of GDP growth are consumption and private investment. Despite strong GDP expansion last year, consumption grew at a modest pace of around 7 per cent - similar to 2024. In 2026, more robust measures to stimulate domestic demand will be essential to achieve higher consumption growth than in recent years.

Private investment will depend largely on economic reforms aimed at improving the business and investment environment. Reducing time and compliance costs is particularly important to enable enterprises to focus on higher-value production and business activities.

Although there have been encouraging signals of reform in recent years, some policy measures – such as tax changes or administrative regulations – have, in certain cases, increased transaction and compliance costs for businesses. This may weigh on private investment in the short term. However, once these regulations are implemented effectively and consistently, they should help reduce costs and time, thereby supporting stronger private investment over the medium and long term.

In 2025, private investment benefited from resumption of real estate projects. However, beyond domestic investment in real estate, there is a need for such funding in other economic sectors, including export activities by domestic enterprises. Currently, such investment remains relatively weak. Thus, in 2026, both domestic consumption and domestic private investment are forecasted to continue facing challenges, making it difficult to achieve desired targets.

The export-led manufacturing sector continues to benefit from resilient external demand, while robust domestic service sector is also helping to support GDP growth. These factors, together with ongoing improvements in public investment disbursement and reforms targeting national priority transport projects, are likely to further strengthen economic activity in coming months.

However, risks from natural disasters, currency depreciation, subdued domestic consumption, and external uncertainties mean that sustained vigilance and responsive policymaking will be needed to maintain momentum and achieve growth targets.

What is your take on the monetary policy implemented in Vietnam recently, and how should it be deployed in 2026?

Overall, monetary policy has been managed appropriately. The government now has limited room to further ease policy through interest rate cuts, as current interest rates are already close to the inflation rate.

Beyond interest rate management, monetary policy also includes open market operations and liquidity support for the banking system. In 2025, credit expansion robustly, growing 19 per cent year-on-year. For 2026, the credit growth target has been set more conservatively at around 15 per cent.

Importantly, monetary policy should be viewed within the broader context of financial market development. This includes fostering stronger capital markets alongside the banking system. Capital markets, particularly equity and bond markets, hold significant potential to help enterprises raise capital more effectively.

At present, credit flows through multiple channels, but the banking system remains the dominant source. By late 2025, bank credit amounted to approximately 145 per cent of GDP, while outstanding corporate bonds accounted for only about 10 per cent.

Developing the corporate bond market is therefore essential to provide medium- and long-term financing for businesses and to ease pressure on the banking system. A more dynamic bond market would help expand credit supply to the economy without placing additional strain on banks.

Vietnam has identified a new growth model based on high technology and innovation, with emerging sectors such as semiconductors and AI. How will this new model create new growth momentum and improve the quality of growth?

Vietnam’s shift to a new growth model is timely and appropriate for the country’s current stage of development. In theory, such a transition involves moving from extensive growth to intensive growth. Extensive growth depends on increasing inputs to expand output, while intensive growth focuses on increasing output without expanding inputs.

Vietnam now needs to pursue intensive growth because its key economic inputs, namely labour and capital, are approaching their limits. The country is nearing the end of its demographic “golden population” period, and both fertility and population growth rates are declining. As a result, labour supply constraints are emerging, making it increasingly unrealistic to rely on continued workforce expansion.

Similarly, Vietnam cannot continue scaling up investment indefinitely. To raise output without increasing input, the country must strengthen the application of science and technology, foster innovation, and enhance management capacity. Management capacity in particular requires urgent attention, as it remains an area where Vietnam continues to lag behind global benchmarks.

Improving operational efficiency is equally vital. This includes boosting productivity and competitiveness in the private sector and strengthening public sector governance to support a shift toward intensive growth.

Vietnam also holds significant advantages in digital technology development, which is transforming both manufacturing and services. Digital technologies can substantially raise labour productivity by modernising production processes and improve efficiency without requiring additional inputs.

The government has set out forward-looking strategic directions. However, progress will depend on the quality of policies and, critically, on the effectiveness of their implementation.