Vietnam’s economy: Positive growth in both quantity and quality

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Clear signs of recovery

Despite facing challenges from both domestic and global economies, which are still in recovery mode, Nguyen Duc Hien, Deputy Head of the Central Economic Commission, noted several bright spots. Vietnam's GDP growth in the first and second quarters of 2024 increased from 5.87% to 6.93%, with the overall growth for the first six months reaching 6.42%. Key indicators, such as total social investment, public and private investments, and foreign direct investment (FDI), which rose by 8.4% year-on-year, also showed positive results. Domestic consumption remained stable, with total retail sales of goods and services increasing by about 8.7%.

Tran Thi Hong Minh, Director of the Central Institute for Economic Management (CIEM), echoed this positive sentiment, highlighting that Vietnam’s economy achieved encouraging results in the first seven months of 2024. One significant international integration event in early 2024 was the UK joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Additionally, upgraded Free Trade Agreements (FTAs) within ASEAN positively impacted Vietnam's economy during the first half of 2024.

Domestically, the government has actively implemented reforms to create a more favorable business environment. For instance, the Prime Minister recently signed Decision No. 603/QD-TTg to establish a steering committee to review and resolve issues in the legal document system. Several key laws have also been enacted earlier than planned, such as the 2024 Land Law and the 2023 Housing Law, demonstrating the government’s determination to use institutional reforms as a foundation for supporting business activities and streamlining government operations.

Another positive aspect is the recovery of all components of aggregate demand, with inflation under control (the average CPI for the first seven months increased by 4.12% compared to 2023).

Regarding FDI attraction, Minh emphasized that while global FDI attraction has declined, Vietnam continues to achieve positive results. According to a May 2024 report by the Japan External Trade Organization (JETRO), Vietnam remains the second most preferred investment destination for Japanese companies looking to expand.

Creating momentum for the year-end period

According to experts, in the near future, the global economy is expected to face potential risks and unpredictable fluctuations, which could negatively impact Vietnam's economic recovery and growth prospects. Meanwhile, 2024 is the penultimate year of the 2021-2025 socio-economic development plan, and if the growth target of 6% to 6.5% is not achieved this year, the overall goal for the 2021-2025 five-year plan will become an impossible task.

To meet the growth targets, Vietnam must maximize its growth drivers and expand its development space. As one of the main growth drivers (along with investment, exports, and consumption), international trade plays a significant role in GDP growth and FDI attraction. Vietnam has established diplomatic relations with 193 countries and is an active member of 70 regional and international organizations. It ranks among the top 40 economies by GDP size and the top 20 by trade volume. Vietnam also leads the world’s top 15 economies in FDI attraction and is among the top 46 in the Global Innovation Index.

In that context, achieving the set growth target requires strengthening and fully leveraging growth drivers to expand the development space for the economy. As one of the key drivers of the "three-horse carriage" (comprising investment, exports, and consumption), according to Trinh Minh Anh, Chief of Office of the Interdisciplinary Steering Committee for International Economic Integration (Ministry of Industry and Trade), the expansion of international trade and exports/imports significantly impacts Vietnam's economy, GDP growth, and foreign investment. Currently, Vietnam has diplomatic relations with 193 countries and is an active member of 70 regional and international organizations. Vietnam is also one of the 40 largest economies globally in terms of GDP and one of the 20 largest economies in terms of trade. Notably, Vietnam ranks first among the top 15 global economies for attracting FDI and is among the top 46 countries globally in the Global Innovation Index.

"In the near future, there are many signs indicating that Vietnam's growth prospects are very promising. This result is due to Vietnam's increasing international economic integration, both in breadth and depth. We have not only signed the most Free Trade Agreements (FTAs), but also high-quality ones. Out of the 16 FTAs signed, 15 are already in effect, including both bilateral and multilateral agreements. As a result, we have established relations with 60 countries and territories across nearly all continents (except Africa), accounting for 90% of global GDP. This makes Vietnam a very important link in global trade," added Minh Anh.

Alongside the opportunities that FTAs bring to exports by removing tariff barriers, Minh Anh noted that Vietnam's participation in the global supply chain also posed numerous challenges. These include increasingly fierce international competition, the need to meet high-quality standards, production speed and scale, technical barriers (such as food safety regulations), and environmental requirements for green production. However, Minh Anh emphasized that Vietnam faced more opportunities than challenges. These challenges can be mitigated by striving to meet global market demands. The government continues to build and improve early warning mechanisms to prevent disputes, regularly inspecting and monitoring the implementation and enforcement of the effective FTAs by maximizing internal strengths and promoting institutional reforms and human resource development. Additionally, for businesses to take full advantage of the benefits brought by FTAs, they must constantly update new information, provide guidance, and train staff to fully understand and utilize FTAs.

According to Pham Quang Vinh, former Deputy Minister of Foreign Affairs, Vietnam is currently in a favorable position to capitalize on investment flows amidst the ongoing shift in global investments. To take advantage of these opportunities, Vietnam needs to focus on selecting the most suitable partners and aim to attract investment that enhances the quality of the country’s economic growth. Simultaneously, Vietnam should implement effective policies to proactively manage the risk of too many factories relocating to the country, which could lead to overproduction and raise concerns about market manipulation in other countries. For example, Indonesia recently imposed high taxes on certain Chinese products due to concerns about these goods flooding its domestic market.