Vietnam economy can grow 6-7% for next decade and beyond: S&P Global

Vietnam’s economy jumped 7.1% in 2024 and can reach 6-7% annually for the next decade and beyond, S&P Global said in a Tuesday note.

S&P Global attributed Vietnam’s strong growth to its significant foreign direct investment (FDI) attraction and an attractive labor force.

The epicenter of the growth momentum is the rapidly expanding export-oriented manufacturing base, which anchors Vietnam's trade balance and attraction to FDI.

Thanks in part to diversification of supply chains outside of China, Vietnam and its corporate partners (including major global multinationals) are making swift investments in capital stock. Registered capital of FDI reached $38 billion, or 8% of GDP, in 2024 and it has averaged 10% of GDP since 2010, according to S&P Global.

A key enabler of this growth driver is the Vietnamese labor force. The availability of surplus labor in rural (and other lower income areas and sectors) can be tapped for jobs for urban or industrial areas. This serves as the bedrock for labor intensive and low-cost manufacturing. The workforce has shown itself to be trainable and high in quality, contributing to foreign investor confidence in the ability of the economy to absorb further investment.

New wealth and the resulting impetus to domestic demand is an additional benefit of rising urban employment and rapid growth. In 2024, real private consumption grew 6.7%, up sharply from 3.4% in 2023, even at the height of the property sector downturn, S&P Global pointed out.

Challenges remain

The country faces a challenge of bridging existing infrastructure gaps while enabling new infrastructure to support growth. Curtailment of power supply is a challenge for some provinces, S&P Global stressed.

Vietnam estimates it needs to double power capacity levels by 2030 and expand it by six times by 2050 (from 2022 levels). Concurrently, the country is also trying to set energy-transition goals. Authorities estimate total capital expenditure requirements of approximately $535 billion through 2050 to meet these targets.

The government has already retained sufficient fiscal space to boost infrastructure development over the coming years. Its gross public and publicly guaranteed debt stock is just 34% of GDP, well below statutory limit of 60%. Furthermore, a relatively low cost of capital in Vietnam helps to keep the government's interest bill modest, at about 5.5% of its total revenues, S&P Global said.

“Still, it's not realistic to expect the government to absorb the entirety of this cost into its expenditure program and balance sheet, even taking into consideration Vietnam's very fast GDP growth,” S&P Global noted.

Private capital could be cautious of funding certain energy investments without demanding high risk premiums relative to other emerging markets in the region, thus potentially raising the bill for Vietnam's expansion. Particularly, the commercial viability of such undertakings will require both discipline and tight oversight, the credit rating agency elaborated.

Suan Teck Kin, head of research at UOB, said in a release on Tuesday that his growth forecast for Vietnam for 2025 is 7%.

Tim Leelahaphan, senior economist, Vietnam and Thailand, Standard Chartered Bank, last Thursday told the media that Vietnam's economic expansion is expected to reach 6.7% this year (7.5% in H1 and 6.1% in H2), driven by continued business expansion this year and beyond, with foreign investment playing a key role.

On the same day, Moody's Ratings stated that Vietnam can reach a real GDP growth of 6.5-7% in 2025, the highest tally in the region. It said challenges for Vietnam include potential shifts in the U.S. trade policies and the possible imposition of restrictions on trade by the United States.

The National Assembly, Vietnam's legislature, last week raised the 2025 growth target to “at least 8%”, up from the 6.5-7% approved in November last year, and looking to target “double digit” growth from 2026-2030.