Projections clear for Vietnam’s growth

The Vietnamese economy grew 7.09 per cent in 2024. What are your thoughts on this rate as compared to regional nations?

Nguyen Ba Hung, principal country economist from the Asian Development Bank in Vietnam

Over the past few months, the global and regional economies remained steady, although there are clear headwinds brewing for the next years. Based on the latest projection by the Asian Development Bank (ADB) in December 2024, the developing economies of Asia-Pacific are expected to grow at 4.9 per cent, slightly lower than the earlier projection of 5 per cent. However, the Southeast Asian region was projected to grow more positively at 4.7 per cent compared with 4.5 per cent earlier.

Among this Southeast Asia optimism despite significant global challenges, Vietnam achieved remarkable economic success in 2024. The economy accelerated to an impressive growth rate of 7.09 per cent in 2024, driven by a combination of robust trade performance and record foreign direct investment, supported by effective policy measures.

The country recorded a significant merchandise trade surplus of $24.77 billion, providing strong support for economic growth and improving the balance of payments. Meanwhile, foreign investment disbursement reached a record $25.35 billion, further fuelling development. However, there are causes for caution from the challenges both in the external environment and the difficulties of the domestic factors.

Importantly, the government’s timely response to the severe impacts of Typhoon Yagi – through rapid reconstruction efforts and financial aid to affected regions – helped swiftly restore economic momentum. Additionally, Vietnam’s substantial stimulus measures, including extended fiscal support and flexible monetary policy, helped maintain a delicate balance between controlling inflation and supporting growth, ensuring stable macroeconomic conditions.

Collectively, these factors underscored Vietnam’s resilience and adaptability. This puts Vietnam as the fastest growing economy in Southeast Asia in 2024.

In 2025, the National Assembly has set a growth target of 7-7.5 per cent. What is the ADB’s projection?

There are significant uncertainties surrounding the global and regional economies in 2025, which in turn will have impact on Vietnam’s economy. While the ADB’s recent assessment of risk scenarios showed modest implication of such uncertainties in 2025, they will potentially affect the global flows of trade and investment from the second half of 2025, causing lower growth in subsequent years.

The ADB upgraded its projection for Vietnam’s growth in 2025 to 6.6 per cent, up from 6.2 per cent forecast in September 2024, carrying the momentum of trade and investment in 2024. This revision is based on Vietnam’s strong export performance, including manufacturing, robust foreign direct investment performance, supported by a global pivot towards monetary easing and moderate global commodity price, including crude oil.

What will be the key impetuses for reaching higher growth this year?

The three main growth drivers of public investment, domestic consumption, and exports remain crucial for Vietnam’s economy in 2025.

Firstly, public investment as a fiscal stimulus measure should be prioritised because Vietnam still has fiscal room. Public debt is well controlled at around 37.4 per cent of GDP as of end-2023. Vietnam should accelerate the disbursement of public investment, as this will directly support contracting industries such as construction and mining and provide more employment opportunities.

Foreign investment will remain a key driver, especially as companies continue diversifying supply chains. Vietnam’s stable political climate and skilled workforce make it attractive. Domestic private investment might also rise as reforms continue.

Secondly, domestic consumption can be boosted with increased demand from fiscal measures, supported by accommodative monetary policy to keep interest rates relatively low. Coordinated policy can effectively support economic recovery, considering relative price stability and weak demand. With a young and growing middle class, domestic consumption is likely to stay strong. However, this depends on inflation control and consumer confidence.

Lastly, Vietnam’s export sector, particularly electronics, textiles, and agricultural products, is expected to grow. However, it may face headwinds from global trade disruptions, competition, and environmental regulations. While the global market is expected to continue to face challenges, it is an opportunity for Vietnam to strengthen its competitiveness and value creation in global production networks to improve its export.

How can these driving forces be translated into reality?

Amid the uncertainties, growth drivers in 2025 will need to be further diversified, with stronger efforts for effective implementation of fiscal stimulus measures, especially public investment in infrastructure, while maintaining a pro-growth monetary policy.

There are positive signs from the across-the-board institutional reforms recently initiated, with welcomed improvements in many important areas like the public investment, procurement and electricity laws, as well as public-private partnership.

The key is quick and effective implementation. If effectively implemented, these broad reforms can enhance efficiency by reducing bureaucracy, improving public services and cutting the cost of doing business and energise additional growth drivers. The reform in public investment law can further support the economic recovery and foster overall economic resilience.

Do you see any challenges for the economy next year?

It should be a promising year for Vietnam, but global headwinds remain. It is unclear what measures the country will be facing under the next US administration, both in relations to its bilateral trade with the United States and the overall impact of protectionist measures to be imposed and triggered by the US and partner countries.

They will also have the potential to disrupt foreign investment flows, which could either benefit or challenge Vietnam’s performance. Risks includes the global economic moderation, the ongoing impact of the Russia-Ukraine conflict, instability in the Middle East. Looming global trade wars that could potentially trigger currency wars would have devastating impacts for developing countries.

Secondly, while improving, Vietnam’s infrastructure still lags behind its peers, potentially slowing economic progress and increasing logistical costs, especially in the increasing demand of incoming foreign direct investment. While the government has announced ambitious infrastructure plans, actual implementation delays are limiting their potential impact on long-term growth.

Accelerating investment in quality infrastructure, including attracting foreign investments, both public and private, into infrastructure mega-projects is both a critical need and an opportunity for boosting growth.

Furthermore, though seen as one of the key growth drivers, domestic consumption remains lukewarm. In 2024, retail sales increased by 5.9 per cent in real terms. This was lower than the 6.8 per cent in 2023, showing sluggish domestic demand. The disbursement of public investment, another key growth driver, reached only 84.6 per cent of the total planned investment in 2024, falling far short of the 95 per cent target. More effective fiscal execution will give the domestic demand boost needed to balance the external demand, which is facing increasing headwinds.

In addition, while the finance sector has seen remarkable development alongside the broader economy in the past decades, there is still a need for reforms to deepen the financial markets to unlock resources and further support higher growth. The economy is reliant on shorter tenor bank credits, while the bond market is offering limited long-tenor debt to support private investment needs.

What other issues will need addressed for Vietnam to further develop?

In medium term, the country needs to upgrade skilled workers, especially in high-tech industries. Lack of skilled workers could hinder growth in emerging sectors. Incoming foreign investors also cite difficulty recruiting the necessary skilled workforce. While the government has set up ambitious plans to train 100,000 semiconductor engineers to leverage the electronics trade, their implementation needs to be expedited.

This is further complicated by the early signs of population ageing, as well as the challenges of effective urbanisation to cater for labour migration.

Next, climate risks and environmental concerns need to be addressed. Being one of the most vulnerable countries to climate change, Vietnam faces significant risks and losses from extreme weather events. In addition, rapid industrialisation brings environmental challenges, including pollution and climate change impacts, requiring sustainable development strategies. In addressing climate and environmental challenges, Vietnam can turn them into opportunities for green and circular economies.

These listed factors highlight an important insight: as Vietnam seeks to maintain its growth trajectory, the foundations for sustainable growth need significant improvement. By leveraging its growth momentum while addressing structural and external challenges, Vietnam can achieve its vision of becoming an upper-middle-income country by 2030 and a high-income economy by 2045.

Vietnam can be global hot spot in 2025 After a stellar year in terms of traveller numbers and new products, industry leaders wish to capitalise on the forward momentum. Hoteliers spoke to VIR’s Hoang Dan about their optimism for the sector in 2025.

Vietnam can take next step to fortune With its business and investment climate improving, Vietnam has created a big impression on the international community, which seeks a brighter outlook for the country.