Illustrative image (Source: VNA)

Hanoi – Vietnam’s economy continued to receive positive assessments in August, including those from the World Bank (WB) that upgraded its growth forecast for this year to 6.1% from 5.5%.

The economy is projected to grow 6.5% in both 2025 and 2026, up from 5% last year, according to the bank’s latest bi-annual economic report on the country Taking Stock.

The country’s capital markets have developed strongly over the past decade, underpinned by robust macro-economic conditions but remained nascent, the WB’s Senior Financial Sector Specialist Ketut Kusuma said.

With the theme “Reaching new heights in capital markets,” the report highlights the resilience of the Vietnamese economy despite rising global challenges.

Vietnam's GDP expanded by 6.4% in the first half of 2024 compared to the same period last year thanks to the recovery of exports of processed goods, as well as higher investment and consumption.

However, the report notes that the economy is not yet back to its pre-pandemic growth path.

Despite recovering, consumer spending and private investment growth remained below pre-pandemic rates, it says.

WB experts held that credit growth improved after a sluggish start to 2024, but bank asset quality has remained a concern since 2023.

“During the first half of the year, Vietnam’s economy benefitted from the rebound in export demand,” said World Bank East Asia and Pacific Practice Manager for Macroeconomics, Trade, and Investment Sebastian Eckardt. “To sustain growth momentum not only for the rest of the year but over the medium-term, the authorities should deepen structural reforms, step up public investment while carefully managing emerging financial risks.”

According to the report, underpinned by robust macroeconomic conditions, Vietnam’s capital markets have developed strongly over the past decade. Healthy economic growth, a stable exchange rate, low inflation, and political stability have positioned its capital markets to catch up with regional peers in terms of their relative size, reaching above 90% of GDP in 2023, on par with Indonesia.

Well-functioning capital markets are critical to mobilize resources, as part of inclusive, resilient, and modern financial markets.

However, when evaluated through its success in intermediating finance, Vietnam’s capital market indicators still indicate an opportunity for further growth.

If Vietnam is to unlock the potential of its capital markets, several specific hurdles need to be overcome to ensure healthy and sustainable growth. A fundamental issue in the country is the underdevelopment of the institutional investor base, including the underutilisation of the Vietnam Social Security (VSS).

The report recommends a stronger policy framework, in which social insurance will become a dominant force in driving capital market development.

Despite steady FDI inflows, the financial account registered a smaller surplus in the first quarter of 2024 compared to Q1-2023 driven by higher net outflows. FDI was steady at 3.4% of GDP in Q1-2024 comparable to Q1-2023, thanks to continued foreign investors’ confidence in Vietnam’s economic prospects and the ongoing relocation of supply chains across the region.

To maintain the FDI inflows, WB experts said Vietnam should rise to a higher level in the value chain. In the medium and long term, the country needs to upgrade its economy through providing better quality human capital and improving the economy's backbone services such as transportation, telecommunications and electricity.

They also suggested Vietnam encourage the application of green technology and reduce pollutant emissions to maintain competitiveness.

HSBC’s latest report titled “Vietnam at a glance: FDI - Back to the basics” also said favourable fundamentals have positioned Vietnam as a prime FDI destination, outperforming ASEAN peers.

In fact, the surge of interest in Vietnam from multinational corporations stems from a variety of factors, including competitive costs and FDI-friendly policies.

Furthermore, the nation has made significant progress in terms of setting up various economic agreements with major trading partners, such as the EU-Vietnam FTA (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), it said./.