Vietnam’s economy garnered positive assessments in August, with the World Bank (WB) raising its growth forecast for 2024 to 6.1%, up from the previous projection of 5.5%. The bank’s latest bi-annual report, Taking Stock, also predicts Vietnam’s economy will grow by 6.5% in both 2025 and 2026, an increase from last year’s 5% expansion.
Economic Growth and Capital Market Development
The WB highlighted the robust development of Vietnam’s capital markets over the past decade, attributing their progress to solid macroeconomic fundamentals. However, the markets are still considered in their early stages. According to Ketut Kusuma, WB Senior Financial Sector Specialist, despite global challenges, Vietnam’s economy has shown resilience, with GDP expanding by 6.4% in the first half of 2024 compared to the same period in 2023. This growth was driven by the recovery in exports of processed goods, alongside higher levels of investment and consumer spending.
Challenges and Areas for Improvement
While the economy has rebounded, the report noted that Vietnam has not yet fully returned to its pre-pandemic growth trajectory. Consumer spending and private investment are still below pre-COVID levels. WB experts pointed out that although credit growth improved after a slow start to 2024, concerns about bank asset quality have persisted since 2023.
Sebastian Eckardt, WB’s East Asia and Pacific Practice Manager for Macroeconomics, Trade, and Investment, emphasized that to sustain growth, Vietnam should focus on structural reforms, accelerate public investment, and manage emerging financial risks.
Capital Markets and Institutional Gaps
Vietnam’s capital markets, currently valued at over 90% of GDP, are on par with Indonesia’s in terms of size. Healthy economic growth, low inflation, political stability, and a stable exchange rate have contributed to this growth. Nevertheless, there is significant room for improvement in Vietnam’s capital markets, especially in financial intermediation.
A key challenge is the underdeveloped institutional investor base, particularly the underutilization of Vietnam Social Security (VSS). The WB report calls for stronger policy frameworks to make social insurance a driving force for capital market development. Well-functioning capital markets are essential for mobilizing resources and building resilient, inclusive financial systems.
Foreign Direct Investment and Supply Chain Relocation
Vietnam’s foreign direct investment (FDI) inflows have remained steady, with FDI accounting for 3.4% of GDP in the first quarter of 2024, similar to Q1-2023 levels. This consistency reflects foreign investors’ confidence in Vietnam’s economic prospects, supported by ongoing supply chain relocations to the country. However, the financial account showed a smaller surplus in Q1-2024 compared to the previous year, driven by higher net outflows.
To maintain its competitive edge and attract higher-quality FDI, the World Bank suggests that Vietnam elevate its position in the global value chain. This includes improving the quality of human capital and enhancing essential infrastructure services like transportation, telecommunications, and electricity. The report also encourages the adoption of green technologies and the reduction of emissions to bolster Vietnam’s long-term competitiveness.
FDI and Vietnam’s Competitive Position in ASEAN
A separate report from HSBC, titled Vietnam at a Glance: FDI – Back to the Basics, emphasizes that Vietnam’s strong fundamentals have made it a leading destination for FDI in Southeast Asia, outperforming its ASEAN peers. The country’s competitive costs and FDI-friendly policies have attracted multinational corporations. Additionally, Vietnam has made significant strides in securing key trade agreements, such as the EU-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), further boosting its attractiveness as an FDI hub.
Conclusion
Vietnam’s economic growth prospects remain strong, with positive assessments from key global institutions like the World Bank and HSBC. However, to maintain this momentum, the country must address key structural challenges in its capital markets, deepen its integration into the global value chain, and prioritize sustainable development. By doing so, Vietnam can solidify its position as a prime destination for foreign investment and continue its upward economic trajectory.
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Source: Vietnam Insider