The macro-economic picture for March and the first quarter of 2026 shows that Vietnam’s economy maintained its solid recovery momentum despite ongoing external uncertainties. GDP in the first quarter grew 7.83 per cent year-on-year; higher than in the same period last year. Industrial production, consumer services-tourism, and investment formed a trio of key drivers supporting growth.

Notable concerns

Observations and assessments of the economic and financial situation highlight several notable concerns.

First, growth quality remains uneven between the FDI sector and the domestic economy. Exports from the domestic sector in the first quarter stood at only $24.47 billion, down 16.6 per cent, while the FDI sector posted $98.46 billion, up 33.3 per cent and accounting for 80.1 per cent of the total. 

The trade balance, meanwhile, shifted to a deficit of $3.64 billion, with the domestic sector posting a deficit of $10.73 billion and the FDI sector a surplus of $7.09 billion. This indicates that export and production growth still depend heavily on the FDI sector, while the competitiveness, resilience, and dynamism of domestic firms remain significantly weaker.

It is worth noting that rapid import growth is not entirely negative, as production inputs account for 93.9 per cent of total imports. This suggests that businesses are expanding imports of machinery and materials to support upcoming production and orders. However, it also reflects a high dependence on imported inputs, particularly from major markets such as China ($50.1 billion) and South Korea ($18.7 billion). Geopolitical conflicts affecting energy prices and logistics costs could therefore transmit risks into domestic production costs.

Second, inflationary pressure became more evident in March. The CPI rose 1.23 per cent month-on-month and 4.65 per cent year-on-year; the highest annual March increase in five years. For the first quarter, the CPI increased 3.51 per cent while core inflation rose 3.63 per cent, with core inflation in March increasing 3.96 per cent year-on-year.

Core inflation exceeding headline CPI suggests that price pressures are no longer temporary but are spreading more broadly across the economy. Notably, the transport group rose 12.85 per cent in March, driven by a 29.72 per cent increase in gasoline prices and a 57.03 per cent increase in diesel prices. Housing, utilities, fuel, and construction materials also rose, by 0.77 per cent. This signals that energy shocks are feeding into transportation, construction, and service costs.

Though price pressures remain under control, the policy space for easing pressure has narrowed. If global oil prices remain high or continue rising, cost-push inflation could spread further in the second quarter. This is particularly sensitive as input material prices have already increased, while 31.6 per cent of households report being negatively affected by rising prices. The risk is therefore not only with the CPI but also with declining real purchasing power and shrinking business margins.

Third, monetary policy is facing a more complex balancing challenge. As of March 24, total money supply rose only 1.04 per cent compared to end-2025, with deposits increasing 0.44 per cent and credit 2.15 per cent; slightly lower than in the same period of 2025. Meanwhile, deposit rates have risen since late 2025, while lending rates remain in the range of 7.1-9.4 per cent per annum.

This indicates that system liquidity is not strained, but the cost of capital is rising, weakening policy transmission to businesses, particularly small and medium-sized enterprises (SMEs).

Though the central exchange rate remains broadly stable, at VND25,102 per USD at the end of March, domestic USD prices and the USD index have increased amid heightened demand for safe-haven assets due to geopolitical uncertainty. Meanwhile, the VN-Index had fallen 6.2 per cent as of the end of the first quarter compared to end-2025, reflecting cautious market sentiment despite improved liquidity.

Fourth, the health of the business sector has improved but remains fragile. Some 96,000 businesses were newly-established or resumed operations after a period of suspension in the first quarter, but nearly 63,500 temporarily suspended operations, over 16,600 ceased operations pending dissolution, and more than 11,700 completed dissolution procedures. On average, 30,600 businesses exited the market each month, close to the 32,000 entering or re-entering.

This suggests that recovery is accompanied by strong market filtering. Notably, average registered capital per new business fell 4.3 per cent, while total additional registered capital declined 5.1 per cent, indicating weak confidence in expansion among private enterprises.

Survey results from the National Statistics Office at the Ministry of Finance reinforce this trend. Only 23.8 per cent of manufacturing companies reported improved conditions in the first quarter of 2026, while 30.1 per cent still faced difficulties and just 17.7 per cent reported increased export orders while 27.3 per cent saw declines.

Fifth, investment and services are improving but need to generate broader spillover effects. Public investment disbursement reached VND133.2 trillion ($5.12 billion), equivalent to 14.5 per cent of the annual plan and higher year-on-year. Registered and disbursed FDI increased strongly. International arrivals reached 6.76 million, up 12.4 per cent and the highest first-quarter figure on record.

However, without stronger links between public investment, FDI, domestic enterprises, supply chains, and high-quality employment, spillover effects will remain limited, and economic growth will continue to be uneven.

Sixth, the labor market appears stable on the surface but faces structural bottlenecks. The unemployment rate stood at 2.21 per cent in the first quarter, with youth unemployment standing at 8.86 per cent. Nearly 1.6 million young people were not in employment, education, or training, accounting for 11.4 per cent of all youth.

This indicates that current growth has not fully translated into sustainable employment opportunities for young workers, posing risks for both social welfare and productivity in the medium term.

Growth scenarios 

The first quarter of 2026 saw a relatively positive start, but policy pressures have intensified. While growth drivers remain strong, rising input costs, energy prices, and a less favorable external environment are creating headwinds.

Achieving double-digit growth would require a highly-favorable combination of conditions: faster declines in oil prices, low inflation, accelerated public investment, sustained export growth, and a strong rebound in manufacturing. Based on first-quarter growth of 7.83 per cent, achieving around 10 per cent for the year as a whole would require average growth of some 10.7 per cent over the remaining three quarters. Therefore, the 10 per cent growth scenario is considered aspirational and conditional.

To achieve double-digit growth, policy must shift from a business-as-usual approach to a conditional acceleration strategy, balancing high growth with inflation control and macro-economic stability.

First, fiscal policy must lead growth, focusing on accelerating public investment in infrastructure projects with strong absorption capacity and rapid spillover effects across construction, materials, logistics, support industries, and services.

Second, monetary policy should remain flexible but not broadly expansionary. With inflation rising, credit should be directed toward productive sectors such as manufacturing, exports, agriculture, infrastructure, and SMEs, rather than dispersed broadly.

Third, price management should anchor inflation expectations. To support high growth, the annual CPI should be kept within approximately 3.6-4 per cent. This requires careful coordination of fuel, electricity, healthcare, education, and public service pricing, along with the flexible use of taxes, fees, and stabilization funds, especially as Brent crude remains around $109 a barrel.

Fourth, all three growth drivers - exports, manufacturing, and domestic demand - must be activated simultaneously. This includes leveraging free trade agreement (FTAs), improving logistics, supporting key industries, and stimulating domestic consumption through tourism and services.

Fifth, Vietnam must move from “attracting FDI” to “amplifying FDI spillovers.” Sustainable high growth depends on the deeper integration of domestic firms into supply chains, support industries, logistics, and upstream production.

Sixth, a policy framework based on early warning thresholds is needed. If oil prices remain above $90-95 a barrel, if the six-month CPI exceeds 4 per cent, or if public investment and export growth underperform, growth expectations should be adjusted accordingly.

Seventh, in the medium term, growth must be linked with addressing labor and social bottlenecks. Policies should focus on vocational training aligned with business needs, short-term skills programs for youth, improved labor market information, and stronger enterprise participation in training. This is not only a social solution but also a critical step toward enhancing productivity and sustaining long-term growth. 

(*)Associate Professor Phung The Dong is from the Ministry of Finance