OECD projects moderation in Vietnam’s GDP growth over next two years

OECD projects moderation in Vietnam’s GDP growth over next two years

Vietnam’s economic growth is expected to slow in the coming years, with real GDP projected at 6.2 per cent in 2026 and 5.8 per cent in 2027, the OECD has said.

The Organisation for Economic Co-operation and Development (OECD) Economic Outlook, released on December 2, noted that Vietnam’s real GDP rose 8.2 per cent in the year to the third quarter of 2025. The report highlighted that final consumption, gross capital formation, and exports of goods and services all supported the country’s steady economic expansion.

Unemployment has remained at an all-time low of 2.2 per cent since the third quarter of 2024. The tight labour market is also reflected in record-low underemployment, while labour force participation has increased. Headline inflation has been driven primarily by rising housing costs, which have risen markedly during 2025.

Export volumes of goods and services have remained remarkably resilient amid significant global policy uncertainty, increasing by an accumulated 15.5 per cent in the first nine months of 2025, compared to the same period in 2024, up from 14.2 per cent in the first half of 2025.

Exports of goods to the US account for 30 per cent of Vietnam’s total exports, which makes Vietnam vulnerable to higher US import tariffs, but so far, these exports have increased by 27.7 per cent in the same period. Foreign direct investment (FDI), an important driver of growth, has continued its steady increase since mid-2023.

The OECD also noted that Vietnam's fiscal policy will continue to support growth through increased public investment in the near term, as the government seeks to make up for past undershooting of investment plans. Emerging inflationary pressures, however, will eventually require moving towards a more neutral fiscal stance. A temporary reduction in the VAT rate from 10 per cent to 8 per cent is now set to end in late 2026.

The monetary policy stance has been accommodative since June 2023, using both interest rate cuts and direct credit growth targets for banks. The increases in pensions, the minimum wage, administrative prices and the VAT increase will add to price pressures in 2026 and 2027. As domestic demand remains solid, the central bank should closely monitor inflation risks and stand ready to withdraw support.

Real GDP growth is projected to moderate to 6.2 per cent in 2026 and 5.8 per cent in 2027 as weaker external demand will eventually affect Vietnam's exports. Private consumption will continue to benefit from steady increases in real wages and employment, although the planned VAT increase in 2027 is likely to dent it temporarily. Investment will be buoyed by planned increases in public investment and favourable financial conditions.

Inflation is projected to rise amid solid domestic demand, and could turn out stronger than projected, although lower export demand could weaken them. As FDI and exports have been Vietnam’s principal growth engines, higher trade barriers and continued policy uncertainty, including on possible transshipment tariffs, constitute major downside risks to the outlook. If policy changes diminish Vietnam’s attractiveness as an investment destination, growth could weaken substantially.

According to the OECD's recommendations, reforms to the macroeconomic and structural policy frameworks could lead to stronger economic performance. Moving towards a more price-based monetary policy would improve macroeconomic resilience and facilitate stronger competition in financial markets, potentially improving the allocation of capital and raising productivity.

Informality affects around two-thirds of employees, limiting social protection coverage and holding back productivity growth. Stronger incentives for formal job creation could result from efforts to reduce the lower labour tax wedge while enhancing the role of non-contributory social protection benefits.

Regulatory reforms hold significant potential to boost productivity. Opening up services markets to competition and foreign direct investment can facilitate the move into higher-value ladders of global value chains, as competitive service inputs can have significant productivity benefits for downstream manufacturing companies. Reducing the weight of state-owned enterprises and levelling the playing field with private firms could allow additional labour and capital to move to more productive firms.

VIR