In the second quarter of 2024, Vietnam’s economic growth surpassed expectations, driven primarily by accelerated expansion in the manufacturing and sustained strength in service sectors

Vietnam’s GDP growth surged to 6.93% year-on-year in Q2 2024, representing the strongest expansion since Q3 2022 and the 11th consecutive quarter of growth.

Notably, this exceeded both growth scenarios projected by the Ministry of Planning and Investment, which had forecasted rates of 5.85% and 6.32% based on Q1 performance. This strong result put Vietnam on track to pursue the 2024 growth target of 6.5-7%. To sustain this momentum, Prime Minister Pham Minh Chinh announced in mid-2024 that Vietnam would maintain flexible monetary policy, with an aim of further cutting banks’ lending interest rates and boosting public investment. By the end of June 2023, the average lending rate stood at 8.3% per annum, a reduction of 0.96 percentage points compared to the end of 2023, while the average deposit rate also fell to 3.59% per annum, down 1.08 percentage points. Credit growth reached 6% by the end of the second quarter. In terms of public investment, Vietnam is set to allocate around 26.4 billion USD in 2024, primarily focusing on transportation infrastructure.

However, as of June 2024, only 29.39% of the investment capital had been disbursed, a lower rate than the same period last year. Approximately 7.9 billion USD had been disbursed by mid-year, prompting calls for improved management and coordination to accelerate disbursement and meet the annual target of disbursing at least 95% of the funds.

Manufacturing and Services Sectors Lead Economic Growth

The industry and construction sector led the economic improvement in Q2 2024, posting a robust 8.29% year-on-year growth, primarily due to stronger manufacturing output. In addition, the service sector also gained momentum, growing by 7.06% year-on-year. Export growth in electronics and seafood further contributed to the overall economic performance. On the flipside, the agriculture, forestry, and fishery sector faced challenges, as the severe drought across the country caused growth in this sector to slow to 3.34% year-on-year.

Breaking down the sector contributions in Q2 2024, the service sector accounted for the largest portion at 43.34% of the total, followed by industry and construction at 37.04%. Additionally, the agriculture, forestry, and the fishing sector contributed 11.30% of GDP. This distribution demonstrated the continued dominance of services and industry as the main drivers of Vietnam’s economic growth during this period.

Chart showing Vietnam GDP Structure in Q2 2024

Vietnam’s GDP growth in the first half of 2024 reached 6.42% year-on-year, making it the second-highest rate within the 2020-2024 period, only behind the 6.58% growth recorded in the same period in 2022. Of which, the agriculture, forestry, and fishery sector grew by 3.38%, contributing 5.96% to the overall added value growth. The industry and construction sector expanded by 7.51%, contributing 44.28%, while the service sector increased by 6.64%, contributing the largest share at 49.76%.

Regarding the economic structure in the first six months of 2024, the service sector accounted for 43.35% of the GDP, followed by the industry and construction sector at 36.44%, the agriculture, forestry and fisheries sector at 11.55%, and the product tax minus product subsidies at 8.66%. Notably, tourism saw a strong recovery, with 8.8 million international visitors arriving Viet Nam in the first half year, a 58.4% increase year-on-year and a 4.1% rise over the same period in 2019, the pre-pandemic benchmark year.

Regarding GDP usage, in Q1 2024, final consumption increased by 5.78% year-on-year, accounting for 64.26% of the economy’s total growth rate. Accumulated assets increased by 6.72%, accounting for 35.15% of total growth. Meanwhile, exports and imports of goods and services rose by 16.89% and 16.95%, respectively, with the difference between the two contributing 0.59% of the overall growth rate.

Inflation Pressures Rise in Mid-2024, Triggering Government Action

Inflation pressures escalated in Vietnam during June 2024, with consumer prices rising 4.34% year-on-year, approaching the government’s target ceiling of 4.5% for the year. The average consumer price index (CPI) for the first half of the year increased 4.08% compared to the same period last year. To manage inflationary risks, the State Bank of Vietnam implemented a series of interest rate cuts in 2024 to help balance growth and inflation. Additionally, in Decree 85/2024/ND-CP dated July 2024, the government issued price stabilization measures, particularly in essential goods like energy and food sectors, to ease pressure on consumer prices. Although the government raised base salaries for state employees by 30% and pensions for retirees by 15% starting in July 2024, efforts to manage the liquidity impact are being closely monitored to ensure inflation remains within the target range.

Vietnam’s trade surplus continued to strengthen in Q2 2024 amid robust export growth

In the second quarter of 2024, Vietnam’s export turnover achieved 97.2 billion USD, representing a 12.5% year-on-year increase and a 4.6% rise from the previous quarter.

For the first half of 2024, total exports reached 190.08 billion USD, marking a robust 14.5% growth compared to the same period in 2023. The domestic economic sector contributed 53.39 billion USD or 28.1% of the total, while the FDI sector dominated with 136.69 billion USD, accounting for 71.9% of total exports. Manufacturing continued to be a major driver, with 87.7% of exports coming from the processing industry, including key products like electronics and machinery.

Workers on a technology processing line

On the import side, Vietnam’s import turnover in Q2 reached 93.4 billion USD, reflecting a 19.8% year-on-year increase and a 9.7% rise from Q1. For the first half of 2024, imports totaled 178.45 billion USD, up 17% compared to the same period last year. The domestic economic sector recorded 65.74 billion USD in imports, while the FDI sector imported 112.71 billion USD. The majority of imports were production materials, accounting for 94% of total imports, underscoring Vietnam’s reliance on imported inputs for its manufacturing sector.

In terms of trade partners, the United States remained Vietnam’s largest export market, despite its decision to maintain Vietnam’s non-market economy status officially announced in August 2024. Export turnover to the US reached 54.3 billion USD in H1 2024. Meanwhile, China remained Vietnam’s top import source, accounting for 67 billion USD in goods. Despite global economic challenges, Vietnam maintained a trade surplus of 3.83 billion USD in Q2 and 11.63 billion USD in H1 2024, slightly lower than the 13.44 billion USD surplus in the same period of 2023.

For services trade, Vietnam saw mixed performance. In Q2 2024, service exports reached 5.5 billion USD, a 17.1% year-on-year increase, though it was a 4.6% decline from Q1. Service imports for the quarter totaled 8.3 billion USD, up 20.1% year-on-year and 6.5% higher than the previous quarter. In the first half of 2024, service exports achieved 11.25 billion USD (up 20%), with travel services accounting for 6 billion USD and showing a significant 40.1% rise, reflecting the continued recovery in tourism. On the import side, service imports totaled 16.11 billion USD, with transportation services contributing the largest share at 42.7%. Overall, Vietnam’s services trade posted a deficit of 4.86 billion USD in the first six months of 2024, highlighting the gap between rising service imports and exports.

Vietnam’s green energy transition - Solar and wind power gain momentum

Wind turbines, Vietnam

Vietnam’s electricity consumption is forecasted to increase by about 15% in 2024, and electricity demand to grow about 8-10% annually in the coming years, according to the Ministry of Science and Technology.

Recognizing the limitations of traditional energy sources and the urgency of climate change, Vietnam is actively pursuing a greener path to ensure energy security, environmental protection, and sustainable development. The government’s ambitious National Power Development Master Plan for 2021-2030 period, with a vision to 2050 aims to develop a renewable-based energy ecosystem, targeting 50% rooftop solar usage in residential households and office buildings by 2030. The plan also sets target for renewable energy (including hydropower, onshore and offshore wind, solar, biomass, etc.) to constitute 30.9-39.2% of total energy by 2030 and 67.5-71.5% by 2050.

During the first half of 2024, Vietnam produced 13.91 billion kWh of solar energy and 6.15 billion kWh from wind, together representing 13.3% of the nation’s total electricity output. In total, renewable energy sources generated 49.36 billion kWh, contributing 32.6% of the overall energy mix. Despite this growth, coal-fired power remained the dominant energy source, accounting for 57.0% of the country’s total energy production. Renewable energy has made significant progress toward Vietnam’s long-term renewable energy targets. Although the current figure of 32.6% for renewable energy indicates consistent growth, achieving the upper end of the national target (39.2% by 2030) will require further acceleration in infrastructure development, regulatory reform, and increased domestic and foreign investment, particularly in wind and solar sectors.

Graph showing Vietnam Power Source Output in the First Half of 2024

Vietnam is well-positioned to become a key player in renewable energy sector thanks to its abundant natural resources. The country benefits from high solar radiation levels, averaging 4-5 kWh per m2, and a long coastline of over 3,000 kilometers with consistent winds, giving it substantial potential for solar and wind energy generation. Vietnam’s technical potential for solar energy stands at 1,646 GW, ranking among the highest globally. Over the past decade, the country has made remarkable progress in solar power, rising from a relatively low ranking of 196th place in 2010 to 9th globally by 2021. This impressive growth is highlighted by the construction of the 600 MW Dau Tieng Solar Power Complex inaugurated in 2019, which is the largest of its kind in Southeast Asia. By 2022, Vietnam contributed 69% of ASEAN’s total solar and wind generation, underscoring its leadership in the region.

Additionally, Vietnam’s extensive coastline, with wind speeds averaging 5.5-7.3 meters per second, offers a substantial opportunity for wind energy production. The country has a total wind power potential of 24.0-26.7 GW and aims to nearly double its onshore and near-shore wind power capacity to 11.3 GW by 2030, up from 5.8 GW in 2021. Looking forward, Vietnam is also prioritizing offshore wind farms and has identified a pipeline of 143 offshore wind farm projects, with several large-scale ventures exceeding 2 GW each. However, realizing these targets requires overcoming significant obstacles. Regulatory hurdles, such as complex permitting processes and inconsistent policies, complicate development. In general, the development of a wind power project in Vietnam is subject to at least six laws and over 20 regulations, with the involvement of nine central agencies, creating an administrative burden. Financial challenges are another barrier, as wind projects demand large initial investments that are risky without secure long-term power purchase agreements. The short three-year feed-in tariff (FIT) eligibility window and the absence of incentives after October 2021 in Vietnam have also made project planning more difficult. Environmental concerns, such as potential impacts on marine ecosystems and coastal erosion, further add to the complexity.

While Vietnam’s renewable energy sector holds promise, several challenges remain. Economic constraints under the current tariff system in Vietnam make renewable projects less attractive to developers. The lack of direct power purchase agreements and established financing mechanisms further hinders the progress of renewable energy initiatives. Additionally, increasing energy prices to support renewable energy projects may face resistance from consumer groups and discourage foreign investment. Moreover, better coordination between government agencies is needed, especially for handling financial disbursements related to official development assistance, which is critical for encouraging private sector participation in these projects.

Despite the challenges, there are still significant opportunities for Vietnam’s renewable energy transition. In December 2023, with the goal of achieving net-zero emissions by 2050 and aligning with sustainable development goals, Vietnam signed the Just Energy Transition Partnership (JETP), a comprehensive agreement addressing policy reforms, technology transfer, and financial backing for a sustainable energy shift. The initiative aims to attract investments to enhance renewable energy, energy efficiency, and grid infrastructure, with an initial commitment of 15.5 billion USD over the next 3 to 5 years. Furthermore, local private sector involvement is growing. VinaCapital was the sole shareholder of SkyX, a rooftop solar power developer focused on the commercial and industrial segment in Vietnam, until the strategic investment by EDF Renewables, a giant in clean energy. Recently, SkyX reached a valuation of more than 100 million USD.

By leveraging its resources and ongoing development efforts, Vietnam is poised to become a dominant force in renewable energy, especially solar and wind power generation, enhancing energy security and contributing to global climate change mitigation efforts.

E-commerce Fuels Vietnam’s Digital Economy Expansion

Vietnam has emerged as ASEAN’s fastest-growing digital economy in 2022 and 2023, with impressive growth rates of 28% and 19%, respectively.

This upward trend is expected to continue through 2025, driven by a rapidly increasing number of smartphone users projected to reach 67.3 million by 2026, representing 96.9% of internet users, according to Google, Temasek, Bain & Company, and Insider Intelligence.

The digital economy’s contribution to Vietnam’s GDP has seen significant progress, reaching 16.5% in 2023, with over 1,500 Vietnamese digital technology enterprises gaining revenues from foreign markets, marking a 7% year-on-year increase. In the first half of 2024, the digital economy’s share of GDP rose further to 18.5%.

Vietnam’s e-commerce sector has been a major driver of this growth. From just 2.8% of total retail sales in 2015, e-commerce accounted for 8.8% as of 2023. In 2023 alone, 57 million Vietnamese consumers made online purchases, with the majority concentrated in major cities like Ho Chi Minh City, Hanoi, and Da Nang City.

Graph showing : E-Commerce Share of Total Retail Sales in Consumer Goods in Vietnam (2015-2023)

Vietnam’s e-commerce market generates an estimated 14.7 billion USD market size in 2024, which is projected to reach 23.77 billion USD by 2029 at a CAGR of 10.09%. In the first 6 months of 2024, leading e-commerce platforms Shopee, Lazada, Tiki, Sendo, and TikTok Shop collectively reported sales of 5.6 billion USD, selling 1.53 million products, representing year-on-year increases of 54.91% in revenue and 65.55% in product sales. Of which, total sales reached 2.79 billion USD in Q1, followed by a modest increase to 2.81 billion USD in Q2.

The Vietnamese government has been instrumental in fostering this growth, as demonstrated by the National E-commerce Growth Master Plan for 2021-2025. The plan targets 55% of the population participating in online shopping by 2025, with average annual spending of 600 USD per person. Furthermore, it aims for non-cash payments to account for 50% of e-commerce transactions by that time. To support these objectives, the government is supporting improvements in logistics networks and payment solutions, such as mobile wallets (which saw 36 million active users by the end of 2023), QR codes, and contactless payment technologies. In addition, in response to fraud and tax evasion in e-commerce sectors, the government has introduced stricter regulatory measures for e-commerce platform operators, such as Shopee and Lazada, ensuring compliance with national reporting requirements and consumer protection laws. These efforts, combined with a focus on digital transformation, aim to keep pace with new business models and support the sustainable growth of e-commerce in Vietnam.

About this report

This report was compiled with contributions from the team of business experts in our Vietnam office.

ARC Consulting, a division of ARC Group, is an advisory firm specialised in supporting western companies operating in Asia. We are on a mission is to bridge between the business ecosystems of Asia and those in Europe and the US. Our services cover market entry and expansion, ESG, production and sourcing, cross-border M&A as well as operational improvement and compliance.

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