Vietnam enters manufacturing and investment-led growth phase

According to a report by Dragon Capital on May 13, domestic consumption and services activity held firm in the first four months of 2026. Although the Iran conflict continued to generate volatility across global markets, easing oil prices and domestic policy action helped moderate immediate inflation and supply concerns.

The report pointed out that industrial production rose 9.9 per cent on-year in April, bringing the four-month 2026 industrial production index growth to 9.2 per cent, while manufacturing expanded 10 per cent on-year in April and 9.9 per cent year-to-date.

Growth broadened further into investment and infrastructure-linked sectors, including chemicals (up 20.6 per cent), metals (up 18.7 per cent), non-metallic minerals (up 17.9 per cent), and motor vehicles (up 17 per cent), pointing to a recovery extending beyond electronics into a wider capex cycle. Domestic demand also strengthened.

Retail sales and services revenue rose 12.1 per cent on-year in April and 11.1 per cent on-year year-to-date. Services activity continued to outperform, led by accommodation and food services (up 13.4 per cent) and tourism-related services (up 12.1 per cent), reinforcing the broadening of growth beyond manufacturing into consumer-facing sectors.

Investment indicators strengthened materially. Public investment disbursement reached $7.1 billion year-to-date, up 10.4 per cent on-year and equivalent to nearly 20 per cent of the 2026 disbursement plan. Disbursed FDI reached $7.4 billion (up 9.8 per cent on-year), the highest four-month level in five years, while registered FDI rose 32 per cent on-year to $18.2 billion.

Manufacturing accounted for approximately 69 per cent of newly registered and expanded capital. Business formation also accelerated, with nearly 77,800 newly established enterprises (up 50.7 per cent on-year), and total active additions exceeding 119,000 (up 32.8 per cent on-year). That this is occurring against a more uncertain external trade backdrop strengthens the read.

On the external front, total trade turnover reached $344.2 billion year-to-date, up 24.2 per cent on-year, with exports rising 19.7 per cent and imports up 28.7 per cent. Import growth was concentrated in machinery, electronics, and intermediate goods, with production-related imports accounting for over 94 per cent of total imports.

Electronics and computer component imports alone rose 52.3 per cent on-year to $65.3 billion, suggesting firms continue to expand production capacity despite ongoing tariff repricing and energy-driven volatility.

Inflation moved higher in April, the first material evidence that lagged energy pass-through has begun, as the April consumer price index (CPI) rose 5.5 per cent on-year. CPI averaged 4 per cent in the first four months of 2026, with core inflation at 3.9 per cent. Both remain below the government's 4.5–5 per cent ceiling, but the cushion narrows if oil stays elevated.

Policy support has helped soften the impact: Decree 72's tariff cuts on refined products and fuel-tax reductions have limited domestic pass-through, with both measures up for review at end-June and room to extend if conditions warrant.

Equity markets recovered, with the VNI up 10.7 per cent from the previous month in USD terms, but the rally was narrow. FTSE Russell confirmed Vietnam's upgrade to secondary emerging market status on April 8, effective September 2026, with the government targeting MSCI EM inclusion by 2030.

The combination of broadening earnings and a narrow price move points to scope for prices to converge with fundamentals once the external picture settles. The H2 path depends on whether the policy buffers are extended, oil stabilises, and earnings momentum broadens beyond the largest contributors.

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