Võ Trí Thành*

On December 20 last year, the Prime Minister issued a dispatch asking for concerted efforts to promote economic development in 2025 with an aim for a gross domestic product (GDP) growth rate of at least 8 per cent in the year, much higher than the National Assembly’s more cautious target at 6.5-7.0 per cent.

Seven days later, the Government leader signed another dispatch, asking for efforts to reach a nationwide economic growth rate of double digits in 2025.

In both dispatches, the Prime Minister emphasised that 2025 is a milestone year for Việt Nam to embark on a new era of development – the era of the nation’s rise, asking for drastic measures by relevant ministries, agencies, provinces and cities to promote socio-economic development.

The question is whether the target is reachable and what the driving force for the growth is. To answer the question, we have to look back at the GDP growth rate of 2024 and analyse the factors behind its success.

On Monday, the General Statistics Office announced that Việt Nam’s GDP growth rate in the fourth quarter of 2024 was 7.55 per cent, thus the rate for the whole year recording 7.09 per cent, surpassing the rate of 6.0-6.5 per cent set by the National Assembly for the year and even beating expectations of many organisations and experts.

The growth rate in 2024 places Việt Nam among the top-growing economies in the East Asia-Pacific region, according to the World Bank’s Chief Economist for Việt Nam, Laos and Cambodia, Andrea Coppola.

This is really good news, coming right at the beginning of the new year 2025, boosting a positive sentiment amongst investors, businesses and the people. Recalling that growth in 2023 only reached 5.0 per cent, the 7.09 per cent growth rate in 2024 means that the economic recovery in 2024 is quite strong. However, it can be said that the achievements we made substantially thanks to external factors.

Firstly, the robust performance of Việt Nam's trade sector was a key driver of last year's economic growth. Import and export turnover soared to a record high of US$786.2 billion, exceeding the previous year's figures by 15.4 per cent and significantly outperforming the planned target. This strong trade performance also resulted in a ninth consecutive year of trade surplus, totalling nearly $25 billion.

Export activities have capitalised on the recovery of major traditional markets to maximise revenue, resulting in growth across most key sectors, particularly in manufacturing and agriculture.

Notably, exports to the US rose by well over 20 per cent this year (versus a 10 per cent drop in 2023), the main factor supporting 2024 GDP growth, according to VinaCapital’s recent report 'Looking ahead at 2025'. The surge was driven by a 40 per cent jump in exports of electronics and other high-tech products to the US.

In addition, the foreign direct investment (FDI) enterprise sector continues to play a crucial role, contributing more than 70 per cent of the country's total export turnover. This sector is responsible for generating the trade surplus, whereas the domestic enterprise sector frequently faces a trade deficit.

Retail sales growth (i.e., stripping out the impact of inflation), a proxy for consumption performance, was another factor, rising by 5.9 per cent in 2024, still below the 8.0-9.0 per cent typical rate. Moreover, the increase was largely driven by a significant rebound in foreign tourism. The total number of international tourists surged by 39.5 per cent year on year to reach 17.6 million visitors, representing an increase from 70 per cent of pre-COVID levels in 2023 to nearly 100 per cent in 2024.

Investment disbursement is still a critical engine of economic growth. Though the total foreign investment of the whole year was down by 3 per cent compared to the figure of 2023, foreign capital disbursement was still up by 9.5 per cent year on year, marking the highest level since 2020. Meanwhile, public investment disbursement for the first eleven months of 2024 was just about 64.0 per cent of the yearly plan assigned by the Prime Minister. At the same time, quite different from 2023, private investment in 2024 started to increase but still at a low level of about 6.0 per cent (in nominal terms).

After three years of stagnation, labour productivity was estimated to grow by 5.88 per cent, exceeding the target of 4.8-5.3 per cent assigned by the National Assembly, but still lower than the target of 6 per cent or higher for the whole five year period of 2021-2025.

Some 8,000 handicraft products made at the Mỹ Quới MCF Cooperative in Ngã Năm Town are exported annually to the US, Canada and Australia. VNA/VNS Photo Minh Hưng

Challenging target

Taking into consideration all the factors above, the 8 per cent GDP growth target is undoubtedly ambitious and will be challenging to achieve. As a highly open economy, Việt Nam is particularly vulnerable to global economic fluctuations and risks.

In general, the global economy is expected to continue facing numerous headwinds due to geopolitical conflicts and trade protectionism, so the recovery may remain sluggish.

On the one hand, the country’s major economic partners, like the US and China, are predicted to experience slower growth compared to 2024, while the EU economy is forecast to grow a marginal one per cent. All that will probably cause negative impacts on the country’s trade and exportation.

Particularly, despite having the third largest trade surplus with the US, Việt Nam will unlikely be able to maintain an extraodinary rise in exports to the US this year as the President-elect Trump has pledged to impose higher tariffs on exporting nations when he takes office.

Even when some might downplay the impact of tariffs, the US inventory replenishment cycle is really a concern, as it will lead to a decline in demand for imports, according to VinaCapital.

In addition, while many had hoped for aggressive interest rate cuts in 2025, the US Federal Reserve (Fed) has announced the adoption of a more cautious approach to monetary policy with plans for only two reductions. It signals that the economy will commit to maintaining relatively high rates, which then makes the US dollar stronger and puts depreciation pressure on Vietnamese đồng. In other words, it will narrow down the room for monetary policy manoeuvres.

On the other hand, importing countries are increasingly applying many new standards and regulations related to supply chains, raw materials, labour and the environment for imported products, such as the EU's anti-deforestation bill, CBAM and other labour, environmental, and intellectual property standards... associated with free trade agreements. These would be significant barriers for Vietnamese exporters if they are not able to transform themselves enough to adapt to the stringent requirements.

Related to foreign investment, it is possible that planned FDI could fall in early-2025 until investors are reassured that Trump will not target Việt Nam.

Customers go shopping at the Go! Long Biên supermarket in Hà Nội. Domestic consumption should be a key driving force for the GDP growth this year. — VNA/VNS Photo Trần Việt

Domestic factors – decisive ones

In an economy heavily reliant on foreign trade and investment, domestic consumption will play a supplementary rather than primary role in driving growth. However, amid possibly unfavourable conditions for the robust contributions of the external factors, internal factors – domestic consumption and public spending – become decisive factors to GDP growth in 2025.

Consumption accounts for over 60 per cent of Việt Nam’s economy, so healthier consumption growth would easily compensate for slower growth in exports, manufacturing or tourist arrivals next year. Though the VAT tax cut from 10 per cent to 8 per cent is extended for another six months, the imitative might not be strong enough to have a significant impact on economic growth. Therefore, it must be accompanied by more aggressive actions. That’s a ramp-up of public investment, especially spending in key infrastructure projects.

According to the Ministry of Planning and Investment, an increase of one per cent in public investment disbursement corresponds to a 0.058 per cent increase in GDP growth. In addition, every VNĐ1 of disbursed public investment capital stimulates VNĐ1.61 of investment capital from the private sector.

Amid the uncertainties, growth drivers in 2025 will need to be further diversified, with stronger efforts for effective implementation of fiscal stimulus and firms’ support measures, especially public investment in infrastructure, while a pro-growth monetary policy has less room to take effect.

Besides, investors’ confidence must be revived and boosted through improved investment environment and stabilised macro-economic conditions.

In conclusion, the GDP growth forecast for 2025 is not merely a quantitative concern. We must prepare for various growth scenarios to navigate challenges effectively. Improving market conditions and cultivating wise relationships with our economic partners, particularly the most significant ones, is essential.

More importantly, the growth in 2025 should be viewed as a solid foundation for Việt Nam to achieve breakthroughs in the future. This requires well-defined institutions, an efficient and effective political and state apparatus and the rapid yet judicious implementation of infrastructure projects.

Much like in football, beyond mere aspirations, we need thoughtful, strategic planning to elevate Việt Nam in this new era.

**Võ Trí Thành is former vice-president at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. With a doctorate in economics from Australian National University, Thành mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms, financial systems and economics of development. He authors the Việt Nam News column Analyst’s Pick.