Vietnam adjusts its GDP growth target for this year to more than 8%, according to the National Assembly resolution. This is to create momentum for the following years of double-digit economic growth (over 10%).
Mr. Suan Teck Kin - Director of Global Market and Economic Research at United Overseas Bank (UOB) commented that on February 25, achieving an increase of 8%, even double digits, is completely feasible as the experience of Singapore and China, especially when Vietnam has strong momentum in 2024 with GDP increasing by over 7%.
To achieve this, Singaporean banking experts recommend that Vietnam strongly increase public investment to support growth and reduce the impact of the risk of decline in exports and production.
This year, the total public investment capital (after supplementation) is nearly VND900,000 billion. In the context of slow disbursement of public capital, Prime Minister Pham Minh Chinh said that the Government will direct ministries and branches to perfect institutions, remove obstacles and regulations related to bidding and public capital with the spirit of "resolving them wherever they are". For example, the Government will focus on removing obstacles for strategic transport infrastructure projects, including railways.
According to data from the IMF, Vietnam's spending on capital expenditure accounts for only about 30% of GDP, much lower than China's 41%.
"Vietnam still lacks significant infrastructure. The implementation of infrastructure projects needs to be accelerated to both create short-term growth momentum while investment is being implemented and improve long-term productivity after the project is completed" - according to Mr. Suan Teck Kin.
The National Assembly recently approved the Lao Cai - Hanoi - Hai Phong railway project, worth 8 billion USD connecting to China. Along with that, the expansion of the North - South expressway is about to be completed, developing more urban railway lines in Hanoi, Ho Chi Minh City... is considered an encouraging signal in infrastructure development.
However, experts say that Vietnam needs to invest more in other important infrastructure serving artificial intelligence (AI)/ data, energy, and water resources to support sustainable growth. Mr. Suan Teck Kin said that Vietnam's fiscal policy is too cautious, as the Government aims to reduce the public debt/GDP ratio from the current 35% to 31% by 2029.
"To increase public investment, it may be necessary to accept increasing borrowing and using more financial leverage" - Mr. Suan Teck Kin recommended.
UOB experts also pointed out the challenges for this year's growth target. Vietnam has a large dependence on trade, with total export turnover accounting for about 90% of GDP, the second highest in ASEAN, after Singapore (174%) and far exceeding Malaysia (69%).
Vietnam's strong GDP performance in 2024 is mainly due to trade, when exports increased by 14% after decreasing in the previous year. In particular, the US is the largest export market, accounting for about 30% of total turnover.
Therefore, risks from US tariff policies could affect one of these important growth drivers. UOB experts believe that the manufacturing and service sectors will be affected if Vietnamese goods are affected by tariff policies. At that time, domestic spending may decrease. In favorable cases, indirect impacts still exist when US economic activity is slow due to new policies, leading to reduced demand for goods.
In the FDI pillar, the capital implemented last year reached a record of 25.4 billion USD. However, the semiconductor cycle shows signs of decline after a period of strong growth in 2024, affecting Vietnam's main export products. In fact, the PMI has fallen for two consecutive months, indicating a slowdown in orders.
Foreign capital flows may be affected by tax policies, as businesses consider shifting investment to locations less likely to be taxed from the US. With these obstacles, UOB maintains Vietnam's growth forecast for 2025 at 7%.
