OECD projects GDP growth of 6.5 per cent for Vietnam this year

OECD projects GDP growth of 6.5 per cent for Vietnam this year

Vietnam's GDP is projected to grow by 6.5 per cent in 2026 and 6.2 per cent in 2027, a slowdown amid uncertainty from the Middle East conflict and US trade policy, the Organisation for Economic Co-operation and Development has said.

In a report released on June 3, the Organisation for Economic Co-operation and Development (OECD) noted that GDP grew by 8 per cent in 2025 and remained strong in the first quarter of 2026, with GDP increasing by 7.8 per cent on-year. Private consumption remained resilient, underpinned by wage and employment increases, while public investment was supported by progress in infrastructure projects.

The labour market is tight with a historically low unemployment rate of 2.2 per cent, and the labour force participation rate increased to 68.7 per cent towards the end of 2025, followed by a slight decline to 68.3 per cent in the first quarter of 2026. Headline and core inflation both rose in April, to 5.5 per cent and 4.7 per cent, respectively. Fuel and transport prices increased by 11.1 per cent on-year.

Exports remained robust throughout 2025 and maintained their momentum in early 2026. Despite the imposition of US tariffs, goods exports remained strong against the backdrop of surging demand for semiconductor-related goods. Services exports have also remained strong, particularly in the tourism sector.

Foreign direct investment (FDI), an important driver of growth for Vietnam, has continued its steady increase. With more than 80 per cent of Vietnam’s oil imports coming from the Middle East, Vietnam is strongly exposed to the evolving conflict in the Middle East.

Fiscal policy will continue to support growth through increased public investment, pursuing an ambitious growth target of 10 per cent average growth over 2026 to 2030. The fiscal deficit of the general government is expected to widen to 4.8 per cent of GDP this year, mainly due to tax cuts in response to higher energy prices. The current energy-related tax cuts include setting import tariffs and the environmental protection tax on petroleum products to zero until the end of June.

Considering that public debt, at 31.5 per cent of GDP in 2025, is well below the 60 per cent ceiling, Vietnam has fiscal space to address emerging medium-term spending pressures and short-term spending needs. The monetary policy stance, defined through quantitative credit targets, has been accommodative since June 2023 and is expected to remain supportive during 2026 and 2027.

“GDP growth is projected to slow to 6.5 per cent in 2026 and 6.2 per cent in 2027 amid higher energy prices and measures to limit energy use. Private consumption will remain buoyant due to strong wages and employment, while the higher energy-related costs and the planned VAT rate increase at the beginning of 2027 will likely dampen private consumption temporarily and keep inflation elevated,” the OECD said.

Investment growth will be supported by public-sector-led projects under the new five-year plan. However, if project implementation falls short of schedule, the growth effect may turn out lower or materialise later.

Exports are expected to lose momentum in 2026 as possible supply disruptions, increased transport costs and the phase-out of front-loaded foreign demand, including on semiconductor-related products, take their toll. Service exports, particularly those related to tourism, are expected to remain robust.

As a small trade-dependent economy and a net importer of oil and gas from the Middle East, Vietnam is particularly vulnerable to higher energy prices and energy shortages, including of refined fuels. Additional downside risks stem from trade policy uncertainty and a possible increase in non-performing loans.

According to the OECD, the central bank should closely monitor inflation risks from rising energy prices and related second-round effects and stand ready to tighten monetary policy if needed. Moving towards a price-based monetary policy would improve macroeconomic resilience and facilitate stronger competition in financial markets, potentially improving the allocation of capital and raising productivity.

Regulatory reforms, such as opening up services markets to competition and FDI, hold significant potential to boost productivity, in addition to reducing the weight of state-owned enterprises and levelling the playing field with private firms. Informality affects around two-thirds of employees, limiting resilience and holding back productivity growth. Stronger incentives for formal job creation could result from efforts to reduce the labour tax wedge for low-income earners while enhancing the role of non-contributory social protection benefits.

Investing in climate-change adaptation measures will be key to enhance climate resilience against floods, typhoons and rising sea levels. Tax cuts on fuels should remain time-bound, while stronger efforts to accelerate the rollout of renewable energy sources would help support both energy security and emission reductions.

VIR