High degree of economic openness
Compared to other countries in the world, Vietnam's economy is highly open. According to the World Bank's statistics, the value of Vietnam's exports of goods and services is equivalent to 94 percent of GDP, ranking 14th globally.
However, the countries above Vietnam in terms of the export/GDP ratio all have small populations. Vietnam stands out with a large population (approximately 100 million people), 9 times that of the second-ranked country in the ranking - Belgium (with 11.6 million people).
Population is an important indicator of the number of workers and the size of the economy. In Vietnam's total export turnover, goods exports account for the majority with 82 percent of GDP. Service exports, mainly tourism and transportation services, account for only 12 percent of GDP.
For comparison, the two other important components of economic growth, retail sales of goods and services (reflecting consumer demand), and total social investment (including private investment, public investment, and FDI), account for 61 percent and 33 percent of GDP, respectively.
The figures above show that exports are the most direct and impactful driver of economic growth in Vietnam. This is because favorable exports lead to positive GDP growth and vice versa. In 2018 and 2019, Vietnam achieved GDP growth of over 7 percent, the highest in 10 years.
During the same period, exports increased by 13.2 percent and 8.4 percent respectively. In 2023, when exports fell by 4.6 percent, GDP also only reached 5 percent.
In addition to its direct impact, exports also have an indirect impact on growth through employment and income, a leading factor affecting domestic demand for retail goods and services.
In 2023, when export growth was negative, unemployment and income losses also increased. According to data from the Ministry of Labor, Invalids and Social Affairs, the number of applications for unemployment benefits in 2023 increased to 1.1 million, approximately equal to 2020, the year of the pandemic (1.12 million applications) and much higher than the number of applications for unemployment benefits in the years before the pandemic.
In the two years 2018 and 2019, the number of applications for unemployment benefits was only 770,000 and 850,000 respectively. Job and income insecurity have held back consumer demand. The retail index for 2023 only increased by 7.1 percent despite interest rates being pulled down very low and VAT being reduced to 8 percent for most consumer goods.
In the 3 years before the Covid-19 pandemic from 2017 to 2019, the retail index increased by over 9 percent in an environment of higher interest rates and VAT. Specifically, the interest rate of the 12-month deposits in the state-owned bank group in the two years 2018 and 2019 was 6.7 percent and 7.1 percent.
Specifically, the average mobilization interest rate in 2023 of this group decreased to only 6.1 percent. In particular, in the last 4 months of 2023, the deposit interest rate fell to below 5 percent.
Expectations for key export markets
Being the most important driver of the economy, exports are heavily dependent on the demand of developed economies such as the US, EU, Korea, and Japan, accounting for 53 percent of the value of Vietnam's exports of goods.
The decline in exports to these markets has caused total exports to decrease and slow down Vietnam's economic growth.
In 2023, exports to the US decreased by 11.3 percent, to the EU by 6.7 percent to Korea by 2.9 percent, and to Japan by 3.9 percent.
In 2024, developed economies are regaining positive growth momentum, forecast to reach 1.7 percent in 2024 and increase to 1.8 percent in 2025. The World Trade Organization (WTO) predicts that global trade in goods in 2024 and 2025 will increase by 2.6 percent and 3.3 percent, respectively, after falling by 3 percent in 2023.
The improvement in purchasing power in developed countries has had a clear impact on the Vietnamese economy. Exports of goods in the first 5 months of 2024 increased by 15.2 percent, while in the same period of 2023, they decreased by 11.7 percent. Exports to the US, EU, Korea and Japan all returned to good growth, reaching 22.3 percent, 16.1 percent, 10.9 percent and 3.2 percent respectively.
Regarding the US market, the largest export market accounts for over 25 percent of Vietnam's export value. In 2021 and 2022 US importers increased their imports of goods rapidly to make up for the Covid-induced disruption. In 2023, when the fear of the pandemic passed, importers felt it was unnecessary to stock up too many goods and so took the initiative to reduce imports to clear inventories.
This is the reason why US imports of goods in 2023 decreased by US$160.5 billion (down 5.1 percent). Of which, imports of consumer goods such as clothing, footwear, telephones and household goods - the main export items of Vietnam, decreased by $ 80.6 billion (down 9.6 percent).
However, in 2024, the US import trend was more positive with an increase of 1.7 percent in the first four months of the year. This explains why Vietnam's exports of goods to the US decreased in 2023 and increased again in the first months of 2024.
Thanks to positive exports, Vietnam's GDP growth in the first quarter of 2024 increased to 5.66 percent, compared to 3.32 percent in the first quarter of 2023. The number of first-time job seekers in the first quarter of 2024 also fell to 168,000, the lowest in 10 quarters, indicating an improvement in the employment sector and business activities of enterprises.
With the forecast that the economies of developed markets will continue to trend positively, and US imports of consumer goods are on the rise again, Vietnam's exports in the remaining months of 2024 will be better. Export growth in 2025 is also expected to be positive, as developed economies are forecast to continue to grow strongly.
