Last updated: February 2023
Vietnam’s transformation in the early 1990s toward a market-based economy ushered in a period of strong growth and attracted significant foreign investment. Continued economic liberalisation, anchored by several international trade deals, has fostered a strengthening in the business climate, which outperforms other emerging Asian countries. Growth is higher than regional peers, a trend that is expected to continue. Creditworthiness is stronger than emerging Asian peers. But per capita incomes continue to lag the regional average.
|The above chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate rank and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2023 and 2027. Business climate is measured by the World Bank’s 2019 Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other countries in the region.|
Vietnam’s economy rebounded in 2022 after two pandemic-hit years. Growth accelerated to 7% in 2022 from 2.6% in 2021 and 2.9% in 2020, driven by a rebound in services activity and robust exports. The manufacturing sector remained relatively resilient to Ukraine-related supply shocks, as production of footwear, electronics, and machinery recorded double-digit growth for most of last year. Vietnam is a competitive manufacturing and export hub and has benefited from strong FDI flows amid geopolitical tensions in the global economy, which will likely continue in 2023.
The IMF estimates GDP growth to average above 6.5% per annum between 2023 to 2027. Growth in the near term will be driven by increasing investment and tourism, as growth in manufacturing and exports moderates in line with the slowing global economy. The easing of China’s zero-COVID policy should support demand for Vietnamese tourism; before the pandemic, Chinese travelers accounted for a third of all visitors to Vietnam. The government’s Economic Support Program (worth 1.6% of GDP) should continue to support private consumption. However, tightening global credit conditions, slowing world growth and rising inflation will dampen growth. A slowdown in the US economy will weigh on Vietnamese exports; the US is Vietnam’s largest export market, accounting for 30% of total goods exports in 2022.
Risks are significant and tilted to the downside. Vietnam’s reliance on foreign demand makes it vulnerable to a sharper-than-expected global economic slowdown. Moreover, further commodity price shocks, additional tightening global financial markets and disruptions in global supply chains remain notable threats to the outlook. Weaknesses in the balance sheets of corporates, banks and households also continues to pose a risk to investment and consumption.
Over the long term, Vietnam is well placed to continue to attract trade and investment from within and outside the region. Vietnam is widely seen as a supply-chain alternative to China because of its low labour costs, educated workforce and large and growing population. The business environment has steadily improved alongside global economic integration and trade liberalisation through participation in multiple international trade deals. A track record of stability in the political and security environment is also conducive for doing business. Vietnam’s young population, alongside the increasing shift into higher-value added manufacturing and services industries, will bolster economic activity.
Longer-term challenges include the potential for increasing global trade tensions, domestic labour shortages and the reliance on large, inefficient state-owned enterprises.
Greater industrialisation and rising credit demand have propelled Vietnam from a low-income to a lower-middle-income country. Continued strong economic growth and increases in minimum wages will help incomes rise above US$6,500 by 2027. As the workforce moves away from agriculture towards more productive manufacturing and services jobs, poverty rates have fallen from over 32% in 2011 to below 2% in 2020.
Vietnam has an OECD country risk rating of 4, which means that there is a moderate possibility of Vietnam being unwilling or unable to service its debt obligations. The three major rating agencies have sub-investment grade credit ratings for Vietnam.
Vietnam’s scores on Worldwide Governance Indicators are broadly in line with, or stronger, than the average for emerging Asian countries. The notable exception is voice and accountability.
The risk of expropriation in Vietnam is low, consistent with the governance scores around the control of corruption and rule of law. The government can only expropriate investors’ property in cases of emergency, disaster, defence, or national interest. The government is required to compensate investors if it expropriates property.
Political risk in Vietnam is moderate. The political and security environment has a track record of stability, helping to provide a conducive environment for doing business. The government remains committed to stamping out corruption and implementing policies to attract investment. Territorial disputes in the South China Sea remains an ongoing risk to Vietnamese relations with neighbouring countries, including China.
Vietnam was Australia’s 13th largest trading partner in 2021. Australia’s total two-way trade with Vietnam in 2021 was valued at $17.9 billion. Australian exports of goods and services to Vietnam rose by 36% between 2020 and 2021. Australian exports to Vietnam are dominated by coal, but also include iron ore, wheat and education-related travel. Goods imports consist mainly of telecommunications equipment, footwear, monitors, projectors and TV’s, footwear and crude oil. Vietnam is part of a network of Free Trade Agreements, including the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) that all support bilateral trade.
Vietnam was Australia’s fourth largest source of foreign students in 2021. Australia is a leading education destination for Vietnamese students, with more than 25,000 Vietnamese students studying in Australia in 2022. Australian exporters can benefit from Vietnamese demand for education and training services in areas such as English language, business and management, and information technology.
Tourist arrivals from Vietnam have increased substantially following the easing of international travel restrictions. A further year of open international borders and pent-up demand for travel should support further recovery in Vietnamese tourism to Australia, and broader services exports, in 2023.
Vietnam’s growing economy and burgeoning middle-class present significant opportunities for Australian exporters, including coal, LNG, iron ore, wheat and meat. Services—including education, professional and technical services—are also well positioned to capitalise on these opportunities.
Before the pandemic, bilateral investment between Vietnam and Australia increased strongly alongside growing foreign trade. Australian investment in Vietnam has picked up after the pandemic. Australian companies that have invested in Vietnam include BlueScope Steel and QBE. Vietnam’s foreign direct investment-led growth provides opportunities for Australian companies to increase investments in education, manufacturing, agribusiness, logistics, financial services and professional services. Vietnamese investment in Australia is small at around $400 million.
Department of Foreign Affairs and Trade