Opportunities are real but time-bound

Vietnam is entering an inflection point as the National Assembly adopts an unprecedented 10 per cent GDP growth target for 2026. This ambition, far above international forecasts of 4–6.5 per cent, reflects strong aspirations and determination.

(L-R) John Low and Truong Bui

Vietnam has developed into a $514 billion economy (in nominal terms), ranking among the world’s 35 largest. The country has experienced rapid urbanisation, with the expanding middle class now comprising the majority of households. Its high level of economic openness, evident in trade volumes nearly twice its GDP, has been supported by a comprehensive network of free-trade agreements and strong integration into global supply chains.

Few countries have captured global economic attention in recent years as strongly as Vietnam. From boardrooms in Tokyo and Seoul to supply-chain control towers in the United States and Europe, Vietnam consistently appears at the top of lists of preferred destinations for production relocation, market expansion, and long-term investment.

The narrative is convincing: a young workforce, political stability, an export engine deeply connected to global supply chains, and a rare combination of trade agreements that give Vietnam privileged access to the world’s most important markets.

These strengths are real, and they have delivered impressive results. Vietnam’s GDP growth has outpaced most of ASEAN for over a decade. Exports have grown at a double-digit pace, and foreign investment remains resilient despite global headwinds. The country has become a critical node in electronics, textiles, furniture, and increasingly renewable energy and electric vehicle supply chains.

But the opportunities facing Vietnam today are not permanent. They are real but time-bound. The global environment is shifting quickly: geopolitical competition is intensifying, supply chains are redesigning themselves, technology is changing the nature of work, and sustainability requirements are becoming mandatory rather than optional.

If Vietnam does not move decisively in the next few years, it risks losing momentum to faster-moving competitors.

The macroeconomic outlook for 2026 and beyond remains positive, but only if Vietnam adapts to the next phase of development, one that demands higher productivity, deeper industrial capability, and stronger human capital. The question is no longer whether Vietnam can grow, but how Vietnam can sustain high-quality growth in a more complex world.

An inflection point

Vietnam enters 2026 from a position of relative strength. Inflation is under control, public debt remains moderate, and the country continues to attract substantial investment from Japan, South Korea, Singapore, and increasingly the United States and Europe. Manufacturing output is recovering from global slowdowns, and domestic consumption is supported by a young and increasingly urban population.

Yet, these foundations face structural pressures. Firstly, the era of easy growth from labour expansion is fading. Vietnam still enjoys a demographic advantage compared to ageing Northeast Asian economies, but fertility rates have declined, urban migration has slowed, and skill requirements are rising faster than the education system can adapt.

Secondly, investment-driven growth is facing diminishing returns. Vietnam built much of its industrial base by offering cost advantages, abundant labour, and preferential trade access. But as wages rise, energy constraints emerge, and technology evolves, low-cost assembly alone will not sustain competitiveness.

Thirdly, global markets are imposing new rules. Consumer demand in Europe and North America increasingly requires environmental, social, and governance compliance, traceability, carbon reporting, and digital transparency. These standards will shape market access in the same way tariffs once did.

Fourthly, supply chains are consolidating around resilience, not just efficiency. Companies are diversifying beyond China, but they are also expecting higher reliability, deeper supplier ecosystems, and stronger infrastructure in alternative locations.

Vietnam must now graduate from a fast-growing emerging economy to a resilient, productive, and innovation-driven one. This is the phase that determines whether a country climbs the value chain, or gets stuck in the middle-income trap.

Meanwhile, Vietnam has benefited significantly from the China+1 strategy. Multinationals, from Apple and Samsung to Lego, Foxconn, and dozens of global apparel brands, have expanded production in the country. Vietnam’s deep network of trade agreements also positions it uniquely as a bridge between major economic blocs.

But this window will not remain open indefinitely. Other economies in the region like Indonesia, India, Malaysia, and Thailand are aggressively courting the same investment flows. Some offer larger domestic markets, deeper natural resources, or faster regulatory reforms.

For Vietnam to retain its advantage, it must move from being a factory destination to being a supply-chain ecosystem. This means strengthening local supplier networks, developing domestic industries for key components, boosting logistics efficiency and reducing trade friction, improving port, energy, and digital infrastructure, and ensuring regulatory stability and predictable policy execution.

Vietnam’s competitive edge must evolve from cost advantage to ecosystem advantage. Macroeconomists often point to total factor productivity (TFP) as the most important indicator of long-term growth. TFP measures how efficiently a country uses labour and capital, essentially the “smartness” of the economy. In Vietnam’s early stages of development, growth was driven by adding more workers, more factories, and more investment. But this model is nearing its limits.

To sustain growth beyond 2026, Vietnam must achieve faster gains in productivity. That requires stronger adoption of automation, digital tools, and AI, better integration between operational technology and IT in factories, upgrading management capabilities in domestic firms, improving logistics, quality control, and supply-chain visibility, and investing in research, development, standards, and innovation.

Vietnam’s manufacturing sector remains heavily dependent on imported components. Without deeper value addition, productivity improvements will be capped. This is why the next decade must focus on capability building, not just capacity building.

Energy, climate, and people

A critical dimension of Vietnam’s competitiveness is energy reliability and green transition. Power shortages in recent years exposed vulnerabilities in grid capacity and energy planning. At the same time, Vietnam has set ambitious renewable energy goals, but faces challenges in integrating solar and wind into the national grid.

This matters because global buyers are now demanding green production. The EU’s Carbon Border Adjustment Mechanism will soon attach real costs to carbon-intensive exports such as steel, cement, chemicals, and heavy manufacturing. Even non-covered sectors will face pressure from European and American buyers, who must meet their own decarbonisation targets.

Vietnam must therefore strengthen its energy strategy by accelerating grid modernisation and transmission investments, expanding renewable capacity in a balanced, planned manner, facilitating corporate power purchase agreements to allow businesses direct access to renewables, developing domestic renewable energy certificates markets, building green industrial zones that attract climate-conscious investors, and sustainability is no longer a global trend. It is a market-access requirement.

One of Vietnam’s greatest strengths, a young, hardworking population, may soon become an impediment if skills do not keep pace with economic transformation. As AI, automation, and digitalisation reshape work, Vietnam must invest heavily in workforce development.

Vietnam’s workforce needs rapid improvements in engineering and technical skills, digital literacy and AI capability, management and leadership capacity, cross-functional thinking and problem-solving, and English proficiency and global business communication.

The future of manufacturing will not be driven by low-cost labour but by human-AI collaboration, design capability, and operational excellence. The next productivity leap will come from companies that integrate tech with strong talent pipelines.

To translate its potential into sustained, high-quality growth, Vietnam needs coherent and decisive action across five strategic fronts. The most important issues are to boost TFP which must be shifted from labour-based growth to productivity-led growth through digitalisation, better management, and technology adoption and deepen industrial ecosystems which enhance local supplier capabilities, strengthen component manufacturing, and improve logistics performance to anchor Vietnam within regional supply chains.

The country also has to secure energy and accelerate green transition. This needs to ensure stable power supply, expand renewable energy infrastructure, and support green manufacturing standards to maintain export competitiveness. Upgrading human capital is another priority, with investing in vocational training, digital skills, AI literacy, and leadership development.

Vietnam’s macroeconomic outlook for 2026 and the decade beyond is undeniably promising, but it must move quickly to build the capabilities, infrastructure, and institutions required for the next stage of growth.