At a conference to discuss investment opportunities in the remaining months of 2024, Hoang Xuan Trung, head of corporate sales and solutions at Citi Vietnam, said, "Foreign investors are gradually vying for Vietnam’s domestic market. Vietnam’s GDP per capita has exceeded $4,000. The country also boasts a 100-million population with rising urban dwellers, indicating higher domestic consumption and spending."

According to a survey by the Japan External Trade Organization (JETRO) in 2023, the export-to-sales ratio of Japanese affiliated companies in Vietnam decreased from 61.3 per cent in 2012 to 49 per cent in 2023, showing that Japanese and other foreign-invested enterprises are shifting their focus to the domestic market.

"Foreign direct investment (FDI) inflows into Vietnam remain robust, with supply chain links to China expected to deepen. Vietnam boasts a strategic geographical location to attract FDI. Since the US-China trade tensions began, Vietnam has been a beneficiary of supply chain diversification," Trung noted, adding that the country is also benefiting from the friendshoring trend.

The Global Minimum Tax (GMT) of 15 per cent coming into force in 2024, but compensatory policies are being devised, and business surveys show tax incentives are not the main driver of FDI into Vietnam. GMT implementation is unlikely to derail the FDI outlook.

The Citi economist further noted, "Vietnam's gross domestic product (GDP) size was estimated at $431 billion in 2023, and is forecast to reach $460 billion in 2024 and $499 billion in 2025. Meanwhile, GDP per capita in Vietnam amounted to around $4,300 in 2023 and is forecast to reach $4,900 in 2025. Vietnam’s population hit 100 million people in April 2023, ranking third in Southeast Asia. The large population offers a potential consumer market for companies, fuelled by an expanding middle class and rising domestic spending."

GDP growth in the second quarter of 2024 accelerated to a stronger-than-expected 6.9 per cent increase on-year, from 5.7 per cent in the first quarter. Both the manufacturing and services sectors contributed to this growth acceleration. Within domestic demand, both consumption and investment growth improved. Looking ahead, Citi has slightly raised its FY24 GDP growth rate from 6 per cent to 6.4 per cent, still within the narrative of 6-6.5 per cent growth, Trung added.

The surge in YoY 2Q GDP growth to nearly 7 per cent was probably contributed to by low-base effects. Recall that in Q2/ 2023, Vietnam experienced El Nino-related power shortages and production disruption, which did not recur this year as the government has been quick to import coal.