Vietnam's economy starts strong, with a GDP growth target of over 10% in 2026

2026-02-05 03:42:47

In December, industrial output increased by 10.1% year-on-year, driving the full-year growth to 9.2%, which is quite strong by recent standards. Given the significant industrial share in GDP and its notable spillover effects on the overall economy, the continued acceleration of industrial production highlights Vietnam’s ongoing attractiveness as a manufacturing and investment destination.

In December, Vietnam’s manufacturing PMI was 53, with companies remaining optimistic about production expansion. However, the index has slightly declined since October, reflecting recent increased global uncertainties. Overall, S&P Global states that surveyed Vietnamese manufacturers’ confidence in the future business environment has reached its highest level since March 2024.

Retail sales in December grew by 9.8% year-on-year, slowing from double-digit growth at the end of Q3 and the beginning of Q4. The retail total reached 627.8 trillion VND, slightly above the 2025 average growth rate of 9.2%. The sharp rise in interest rates at the end of Q4, combined with previous expectations of tightening liquidity in the banking system, has put pressure on retail momentum, and household spending remains cautious. In contrast, accommodation services maintained strong growth, and travel services performed even better.

In 2025, Vietnam’s registered foreign direct investment (FDI) totaled $38.4 billion, remaining robust but roughly flat compared to 2024. Overall, Vietnam demonstrated resilience in attracting foreign investment.

Global trade in 2025 faced severe headwinds, mainly due to ongoing trade tensions between the US and other countries. Overall, Vietnam is at a critical turning point: economic growth urgently needs to shift from quantity expansion to quality improvement.

In December, inflation rose by 3.48% year-on-year, within recent ranges and well below the government’s 4.5% inflation ceiling. The average inflation rate for the full year was 3.31%, confirming the successful achievement of the annual inflation target. Vietnam’s inflation target for 2026 remains below 4.5%. Based on current trends, this target is likely to be met, providing room for authorities to implement more flexible fiscal and monetary policies.

Vietnam achieved positive economic growth in 2025, reaching a historic milestone of 8.02%, laying a solid foundation for more ambitious development plans from 2026 to 2030. Vietnam set a higher GDP growth target of over 10% for 2026. We believe that if domestic policies and the international environment remain stable and develop favorably, Vietnam’s chances of reaching this growth goal are high. However, considering leadership changes, the cautious stance of the State Bank of Vietnam earlier this year regarding monetary policy, and complex geopolitical situations, this year’s economic growth may also be lower. Overall, we estimate: the probability of growth in the 10%–10.5% range is about 50%; in the 8%–8.5% range is about 40%; and the chance of only 6.5%–7% growth is about 10%.

Industrial Production Accelerates

In December, Vietnam’s industrial output increased by 10.1% year-on-year, driving the full-year growth to 9.2%, which is quite strong by recent standards. Given the large industrial share in GDP and its significant spillover effects, the continued acceleration of industrial production underscores Vietnam’s ongoing attractiveness as a manufacturing and investment destination.

Among industrial sub-sectors, mining showed a mild recovery, with a 0.2% increase in December and a 0.5% increase for the full year. Although the growth remains modest, considering the long-term decline in this sector, returning to positive growth is notable.

Manufacturing continues to serve as the main growth engine, with December output up 10.9%, and the full-year growth reaching 10.5%. The most prominent sector is automobile manufacturing, which surged 22.0% in 2025, closely linked to VinFast’s accelerated operations and capacity expansion during the year.

More broadly, several manufacturing sub-industries achieved double-digit growth, including apparel manufacturing, rubber and plastic products, and food processing. In contrast, electronics, computers, and optical products grew by 8.3% year-on-year, with a slowdown toward the end of the year, despite their critical role in exports and the presence of major foreign manufacturers like Samsung and LG.

In other industrial areas, power generation and supply, as well as water supply and waste/wastewater treatment, grew by 6.7% and 7.8%, respectively, supporting the overall stable growth of the industrial sector.

In December 2025, Vietnam’s manufacturing PMI was 53, indicating continued optimism among companies about production expansion. However, the index has slightly declined since October, reflecting recent global uncertainties.

S&P Global, which compiles Vietnam’s PMI, noted that December saw a significant increase in output driven mainly by new orders. Companies also accelerated hiring, showing limited concern about short-term demand or production weakness. However, input costs continued to rise, partly due to supply chain constraints caused by adverse weather conditions at year-end. Overall, S&P Global states that surveyed Vietnamese manufacturers’ confidence in the future business environment has reached its highest level since March 2024.

Domestic Retail Sales Remain Resilient

In December, Vietnam’s retail sales increased by 9.8% year-on-year, slowing from double-digit growth at the end of Q3 and the beginning of Q4. The retail total reached 627.8 trillion VND, slightly above the 2025 average growth rate of 9.2%. The sharp rise in interest rates at the end of Q4, combined with previous expectations of tightening liquidity in the banking system, has put pressure on retail momentum.

Goods retail still dominates in 2025, accounting for 76.1% of total retail sales of goods and services. This category grew by 8.6% in December and 8.0% for the full year, indicating households remain cautious.

In contrast, accommodation services maintained strong growth, with December up 14.2% and full-year growth of 14.6%, mainly benefiting from a robust recovery in inbound tourism, especially from China. Domestic holiday travel also rebounded significantly, helping the industry achieve a notable bounce-back in 2025.

Travel services performed even better, with December increasing by 19.9% and full-year growth of 20.2%. However, due to their smaller weight, accommodation services account for only 12.0% of total retail sales of goods and services, and travel services only 1.4%, limiting their overall contribution.

In December, international visitors increased by 15.7% year-on-year, with annual growth reaching 20.4%. Amid escalating global geopolitical tensions, this further consolidates Vietnam’s position as a safe and attractive tourist destination. Most visitors arrived by air (84.3%), followed by land (14.4%), and sea (1.3%).

Asian tourists continued to dominate, accounting for 78.6% of total visitors. Chinese tourists (25.0%) surpassed Korean tourists (20.0%) as the largest source market. In 2025, the trend between the two countries diverged significantly: Chinese visitors surged 41.3%, while Korean visitors declined 5.2%. Notably, in December, Chinese tourist growth slowed nearly by half, with only a 25.7% increase year-on-year; Korean tourist numbers fell by 10.7% that month.

Looking ahead, maintaining the strong growth momentum of the past year in 2026 may pose challenges for Vietnam’s tourism industry.

Foreign Direct Investment (FDI)

In 2025, Vietnam’s registered foreign direct investment (FDI) totaled $38.4 billion, remaining strong but roughly flat compared to 2024. FDI growth slowed significantly after mid-year—initially recording 4% to 6% growth, but the full year only achieved a slight 0.5% YoY increase.

The slowdown in committed FDI mainly stems from a decrease in new registered projects. In 2025, Vietnam attracted new FDI commitments worth $17.3 billion, below the $19.7 billion in 2024. In contrast, additional investments in existing projects reached $14 billion, roughly the same as last year. The most notable increase within FDI was in equity acquisitions and capital contributions, which soared to $7 billion in 2025, well above last year’s $4.5 billion.

Actual FDI inflows in 2025 reached $27.6 billion, further demonstrating that foreign enterprises still highly value their production presence in Vietnam. The inflow increased by 8.95% YoY, slightly below the 9.36% growth in 2024 but still robust.

Overall, Vietnam has shown resilience in attracting foreign investment. However, changes in the global trade and investment landscape are bringing new challenges, urgently requiring Vietnam to push forward proactive reforms and implement more advanced policies to enhance national competitiveness and attractiveness to international investors.

Import and Export Trade

In 2025, global trade faced severe headwinds, mainly due to ongoing trade tensions between the US and other countries. Although disputes shifted from broad measures at the start of the year to more targeted country-specific strategies from the third quarter, several US allies including Canada, South Korea, and Japan were still occasionally affected unexpectedly.

Vietnam effectively leveraged its strategic position and reached constructive tariff-related agreements with the US. As a result, Vietnam maintained its key role as a manufacturing hub in the global supply chain, with both exports and imports growing strongly.

By the end of 2025, Vietnam’s exports reached $475 billion, up 17.9% year-on-year; imports also expanded robustly, up 20.1%, reaching $455 billion. The faster growth of imports compared to exports narrowed the trade surplus to $20 billion, below the peak of $28.4 billion in 2023 and $24 billion in 2024.

Overall, Vietnam is at a critical turning point: economic growth urgently needs to shift from quantity expansion to quality improvement. While foreign trade will remain a key pillar of economic expansion, its relative contribution may gradually decline over the next few years.

Inflation

In December, inflation rose by 3.48% year-on-year, consistent with recent ranges of 3.3%–3.5%. This level is well below the government’s 4.5% inflation ceiling, reflecting effective social cost control and social stability. The full-year average inflation rate was 3.31%, confirming the successful achievement of the annual inflation target.

The inflation structure in December and for the full year saw little change. The largest increases were in medicines and healthcare products, up 10.3% YoY in December and averaging 13.1% for the year; followed by housing and construction materials, up 5.23% in December and 6.08% for the year. Notably, food prices (about one-third of the CPI basket) accelerated to 4.2% in December, significantly faster than in November. If this trend continues, inflation pressures in 2026 could surpass those of 2025.

On the other hand, transportation prices (down 0.55% YoY in December and down 2.14% for the year) and communication services (down 0.25% in December and 0.45% for the year) helped curb overall CPI increases. Given stable oil prices, transportation costs in 2026 are unlikely to fluctuate significantly; communication prices may continue to decline slightly due to increased competition and ongoing technological innovation.

Vietnam’s inflation target for 2026 remains below 4.5%. Based on current trends, this goal is likely to be achieved, allowing the government to implement more flexible fiscal and monetary policies.

Source: GTJAI Macro Research

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