Realizing opportunities and keeping structural fragilities in check

Vietnam is a good performer among emerging economies, with nearly +7% growth on average in the three decades before the Covid-19 pandemic, and +4.5% on average over 2020-2022. Against the backdrop of the global economic growth slowdown and weaker external demand, we estimate that real GDP growth declined from +8% in 2022 to +4.7% in 2023 and expect a recovery to +6.3% in 2024. As such, Vietnam will remain one of the fastest-growing economies in the Asia-Pacific region in the upcoming years. Outperforming exports, especially of electronics, machinery, and footwear, will remain the key growth drivers, supported by the trend of international firms diversifying their supply chains and relocating their operations to Vietnam. Impacted by higher global commodity prices and the stronger USD since 2022, inflation in Vietnam accelerated and reached an average 3.2% in 2022 and 3.3% in 2023 (from 1.8% in 2021). We expect the inflation rate to remain elevated in 2024 (3.4%) before easing slightly in 2025 (3.1%).

Over the longer term, the economy is expected to remain a sturdy growth performer in the region, helped by foreign direct investment, solid demand from Asian and Western markets, strong competitive advantages (low labor costs, high productivity growth and a strategic location), increasing integration in global supply chains and a positioning as a global manufacturing hub. Vietnam may also benefit from some firms’ will to divest and diversify from China and find new production sites.

Vietnam’s business environment is below average in our assessment of 185 economies. The Heritage Foundation’s Index of Economic Freedom 2023 survey assigns Vietnam rank 72 out of 184 economies (a steady improvement from rank 105 in the 2020 survey), reflecting good scores with regard to the tax burden, government spending, business freedom and trade freedom, while weaknesses remain particularly in the areas of investment freedom, financial freedom, property rights, judicial effectiveness and government integrity. The latter is underscored by the World Bank Institute’s annual Worldwide Governance Indicators surveys, which indicate considerable weaknesses with regards to the regulatory and legal frameworks, as well as measures to combat corruption. Our proprietary Environmental Sustainability Index puts Vietnam at rank 130 out of 210 economies, reflecting strengths in energy use per GDP and water stress, but weaknesses in terms of climatechange vulnerability, renewable electricity output and the recycling rate.

Political stability is to be expected in the coming years. Vietnam is a one-party state, tightly controlled by the Communist Party of Vietnam (CPV). Nguyễn Phú Trọng was named general secretary of the CPV for the third consecutive term in early 2021, ensuring policy continuity. The next election for the National Assembly (often characterized as a rubber stamp for the CPV) is scheduled to be held in 2026. CPV General Secretary Nguyễn Phú Trọng’s policy agenda in the coming years focuses on a high-level anti-corruption campaign, attracting foreign investment, privatizing stateowned enterprises, and upgrading infrastructure.