Vietnam, one of the fastest–growing economies in the world, has been called Asia’s shining star during the pandemic. Its aggressive public health measures were able to minimise the impact of Covid-19 on Vietnam’s economy. Its GDP is predicted to return to high levels in the next two years.
Vietnam Economy Overview
The economic boom in Vietnam is attributed to the shift in labour allocation from agriculture to the manufacturing and services sector. The country also received a boost from private investment, strong tourism, higher wages, and increased urbanisation. The rapid expansion of industries, such as textile, electronics, and seafood production, propelled export numbers to new heights.
Vietnam recorded 10-year high GDP growth of 7.1% in 2018 and by 7% in 2019. Despite the Covid-19 outbreak in 2020, the country was one of the few economies that recorded positive growth with 1.6%.
The Vietnam economy is expected to recover fast and record GDP growths of 6.7% this year and 7.4% in 2022. However, the normalisation of its economic activities still depends on the post-pandemic global economic recovery. GDP per capita remained around $3,000 and is expected to increase to $4,000 by 2022.
As of 2020, the country’s population is at around 97 million, making Vietnam the 15th most populous nation in the world, despite the government’s two-child policy. While Hanoi is Vietnam’s capital, Ho Chi Minh City (formerly Saigon) is the country’s most populated city.
Unemployment is very low despite a slight uptick in 2020 to 3.3% from 2.2% in 2019. However, the IMF expects the country’s unemployment to decline to 2.7% by 2021 and 2.4% by 2022.
Currency and Central Bank
The Vietnamese dong has been the country’s official currency since 1978. The dong was formerly subdivided into 10 hao. These coins have not been used since 2014 in retail, although, some banks may still accept them.
The State Bank of Vietnam serves as the country’s central bank and owns approximately 65% of Vietnam’s largest listed bank by capital, VietinBank. The central bank is responsible for the promotion of monetary stability, the formulation of monetary policies, and the supervision of financial institutions.
Government debt increased from 43.4% of the GDP in 2019 to 46.6% in 2020. However, a limited increase to 47.1% and 47.2% is expected in 2021 and 2022, respectively, due to tightening monetary policies and limits on new government guarantees. Meanwhile, inflation is expected to average at 4% in 2021 and 2022 after increasing to 3.8% in 2020 from 2.8% in 2019.
Industry and Trade
The agriculture, industry, and services sectors are the pillars of Vietnam’s economy. It is dominated by large state-owned companies, including textiles, plastics, food, furniture, paper, tourism, and telecommunications.
Vietnam’s services sector represents 41.6% of the country’s GDP and employs 35% of the total workforce. The government’s pandemic measures last year impacted its dominant services tourism and telecommunications.
The industry sector makes up 34.5% of Vietnam’s GDP and provides jobs to 28% of the labour force. Recently, the country’s coal, hydrocarbons, electricity, cement, and steel industries have boomed while oil production became the third-largest in Southeast Asia. Automobiles, electronics, and computer technologies are the high–value-added industries attracting major investments.
The country’s agriculture sector contributes to 14% of the GDP while employing 36% of the total workforce. Rice, coffee, cashew nuts, corn, pepper, sweet potatoes, peanuts, cotton, rubber, and tea are among the country’s top agricultural products.
Vietnam is one of the most open economies in Asia when it comes to international trade. In 2019, foreign trade amounted to 210% of Vietnam’s GDP. Its main trading partner is the United States, with 23.2% of all exports in 2019, followed by China, Japan, and South Korea. When it comes to imports, China is its main provider of imports at 21.8%, followed by South Korea, Japan, and the United States.
Survey and Rankings
Vietnam improved its overall score from 68.6 in 2019 to 69.8 in 2020 in the World Bank’s 2020 Ease of Doing Business 2020. However, the country slid down by one spot from 69th to 70th out of 190 countries. It is currently in the 8th spot among countries in East Asia and the Pacific region.
Meanwhile, Vietnam took a big leap from 105th freest in 2020 to 90th in 2021 in the Heritage Foundation’s Index of Economic Freedom. The country improved its overall score by 2.9 points from 58.8 to 61.7. It also crossed categories from “Mostly Unfree” to “Moderately Free.”
The World Economic Forum’s 2020 Global Competitiveness Report did not provide overall rankings due to missing data from different international organisations. Vietnam ranked 67th in 2019 with a score of 61.5.
Stock Exchanges and Capital Markets
The Ho Chi Minh City Stock Exchange (HOSE or HSX) and the Hanoi Stock Exchange (HNX) are the two major stock exchanges in Vietnam. The Vietnam Stock Index or Vn Index serves as the benchmark of HSX and is based on the total capitalisation of all listed companies in the exchange.
In 2020, the government decided to set up the Vietnam Stock Exchange to manage HSX and HNX. While both exchanges will share certain functions, HNX will be responsible for operating the derivatives market, the bond market and the market for other securities. HSX will undertake all stock tradings.
HNX will stop listing new stocks from July 1, 2023 and switch all existing listed companies to HSX by December 31 the same year.
Vietnam’s bond market has seen steady progress over the past years due to continuos initiatives by the government. While government bonds still dominate the market, municipal bonds, corporate bonds, and convertible bonds are now available.
In the fourth quarter of 2020, both government bonds outstanding and corporate bonds outstanding posted quarter-on-quarter increases of 7.1% and 13.6%, respectively.
Real Estate Market
The manufacturing boom has greatly influenced Vietnam’s local real estate market. Industrial rents increased by 9.0% in 2019 and 10.6% in 2020 despite the pandemic. Companies such as Samsung, Nike, and Adidas have transferred into Vietnam from China due to the latter’s steep production costs and the trade war with the US.
Meanwhile, the lack of investment options and high demand for apartments led to a housing market boom. From 2017 to 2020, apartment prices in Ho Chi Minh City surged by a whopping 90%, and in 2020 alone, it went up by 12.8% despite the Covid-19 crisis.