Strong economic performance masks structural fragilities


SENSITIVE RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD 223.864bn (World ranking 45, World Bank 2017)
Population 95.54mn (World ranking 15, World Bank 2017)
Form of state Communist State
Head of government Nguyễn Xuân Phúc
Next elections 2021, legislative
  • Low wages but relatively skilled workforce
  • Competitive manufacturing hub
  • Development potential of various natural resources, especially minerals (iron ore, copper, gold) and energy (oil, natural gas, coal)
  • Relatively open economy with growth model based on trade
  • Ongoing shift towards higher value-added sectors
  • Lack of transparency
  • A fragile and opaque banking system
  • Infrastructure to be improved
  • A complicated business environment
  • Low external reserves
  • Recurrent tensions with China

Economic growth is strong, supported by exports and foreign direct investment

Economic growth accelerated from 6.8% in 2017 to +7.1% in 2018 - its highest pace since the 2008-09 - driven by a solid rise in exports, an increase in investment and a robust growth in private consumption.

Looking ahead, we expect economic growth to slow but to remain fairly resilient at +6.5% and +6.4% respectively in 2019 and 2020. Slower growth in global trade, tighter credit conditions and fiscal consolidation will be the reasons behind the deceleration. In the longer term, the economy is expected to remain a strong growth performer of the region helped by: a strong growth in foreign direct investment; a solid demand growth from Asian markets; its strong competitive advantages (low labor costs, high productivity growth and its strategic location); its increasing integration in global supply chains and its positioning as a global manufacturing hub. The country is seen as one of the few “beneficiaries” of current China-US trade feud as corporates producing in China look for new production hubs.


Three vulnerabilities continue to weigh on the long term outlook

Firstly, financial risks remain elevated. These stem from the combination of a fragile banking sector and a strong growth of credit. Official non-Performing Loans to total gross loans ratio has decreased from 3.4% in 2012 to 2.0% in 2017. Yet, a broader calculation from the IMF including other impaired loans (e.g. NPLs sold to Vietnam Asset Management Corporation and special mention loans put the ratio) brings the indicator close to 7.5% (from an estimated 8.4% in 2016).  Credit growth remains strong estimated at +14% y/y in 2018.

Secondly, public finances still need consolidation. General government debt was estimated at 58% GDP in 2018 compared: to a debt below 55% GDP for Malaysia, Thailand, Philippines and Indonesia; and a level of 41% GDP in 2007. Debt sustainability is not at risk for now considering economic growth prospects, the pace of reforms (broadening the tax base), and the direction of fiscal policy (towards consolidation). Yet, authorities will need to improve its public finance to increase fiscal space.

Thirdly, international reserves are low and external debt is elevated compared to regional peers.  Import cover is estimated at 2.4 months in 2018, still below the desired level of 3 months. External debt is at 51% GDP in 2018 compared to an average of 40% for emerging ASEAN core markets ; and to a level of 37% in 2013.


Business environment: opening and improving

The country is ranked 69th in the last Doing Business survey (2019 Ease of Doing Business survey), 13 ranks above the 2017 edition reflecting an improvement in Tax payments and Getting electricity sub-components. Starting a Business and Insolvency Resolution sub-components continue to be a problem.

The long-term outlook is broadly positive as infrastructure and business practices are set to improve. Authorities are expected to increase infrastructure spending to preserve exports performance. Moreover, strategic trade partnerships are set to accelerate the integration of the economy in global supply chains but also improve business practices. On top of boosting exports, we expect partnerships such as the ASEAN economic community, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or the upcoming Regional Comprehensive Economic Partnership (China, India, Australia, New Zealand, South Korea, Japan, and ASEAN) to help improve business practices in the country. 


Trade structure by destination/origin

(% of total)

Exports Rank Imports
United States 20%
27% China
China 14%
19% Korea, Republic of
Japan 8%
8% Japan
Korea, Republic of 6%
6% United States
China, Hong Kong SAR 4%
6% China, Taiwan Province of

Trade structure by product

(% of total)

Exports Rank Imports
Telecommunication and sound recording apparatus 19%
16% Electrical machinery, apparatus and appliances, n.e.s.
Articles of apparel & clothing accessories 14%
9% Telecommunication and sound recording apparatus
Footwear 8%
8% Textile yarn and related products
Electrical machinery, apparatus and appliances, n.e.s. 7%
5% Iron and steel
Fish, crustaceans, molluscs and preparations thereof 5%
5% Other industrial machinery and parts

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings