Vietnam’s Economic Landscape: Embracing Global Risk-Taking for Growth in 2024-2026
Vietnam is projected to maintain its status as one of Asia’s fastest-growing economies in the upcoming years, according to forecasts from various international organizations. This anticipated growth is primarily linked to the ongoing transformation of global supply chains, as multinational corporations seek to diversify production away from China. Factors such as competitive labor costs, a strategic geographic location, and an extensive network of free trade agreements enhance Vietnam’s attractiveness as a destination for foreign direct investment (FDI).
Attraction of Foreign Direct Investment
As global economies increase their overseas investments, Vietnam is poised to attract new projects in vital sectors, including manufacturing, energy, and infrastructure. The country is also gradually gaining access to high-tech industries and research and development initiatives. Should the global economy continue to pursue a “risk-taking for growth” strategy, demand for consumption and investment from major markets—such as the United States, Europe, Japan, and South Korea—is likely to bolster Vietnam’s export performance.
Challenges in Economic Growth
Despite these opportunities, Vietnam’s current growth model faces several challenges. A significant portion of the country’s economic expansion is influenced by external factors, rendering it vulnerable to international fluctuations. Historical experiences, particularly downturns in textiles and electronics during global economic slowdowns, underscore this fragility.
Moreover, the domestic value added in key export sectors remains limited, with many industries primarily engaged in processing and assembly that rely heavily on imported components and technologies. This situation restricts local firms from fully capitalizing on their outputs and exposes them to increasing environmental and labor standards in international markets that may compress profit margins.
Demographic Challenges
Compounding these issues is Vietnam’s rapidly aging population, suggesting the risk of becoming “old before rich.” Without enhancements to labor productivity and average income over the next decade or so, the social security system may experience mounting pressure as the growth rate of beneficiaries outpaces that of contributors.
Strategic Investment for Future Growth
To address these challenges, Vietnam must utilize the current favorable economic conditions to invest in long-term infrastructure, education, healthcare, digital transformation, and human capital development. A focus on these areas, rather than short-term speculative sectors, is crucial. Improving labor productivity and technological capabilities is important for building economic resilience in the face of shifting global economic cycles.
Fiscal Discipline and Banking Stability
Furthermore, maintaining fiscal discipline and stability within the banking sector is essential. While larger economies may absorb higher risk levels, Vietnam’s dependence on external capital limits its policy flexibility. Aggressive capital-seeking strategies could lead to instability.
Diversifying Markets and Strengthening Domestic Firms
Diversifying markets and strengthening the position of domestic firms within global value chains will also be critical. Reducing reliance on a narrow range of markets or industries, while fostering local businesses to engage in higher value-added activities such as design, marketing, and after-sales services, can help retain economic value domestically and mitigate vulnerabilities to external shocks.
Balancing Growth and Governance
As the global trend of prioritizing growth over risks gains traction, Vietnam has the potential to leverage these developments, though it will face challenges related to governance and long-term strategic vision. Achieving a balance between seizing opportunities and strengthening internal capacities is necessary to prevent stagnation and ensure the country can maximize favorable global conditions.
(Source: RMIT University)
