The Ripple Effects of Export Performance
Vietnam’s economy is remarkably open compared to other nations. According to the World Bank, Vietnam’s export value of goods and services stands at an impressive 94% of GDP, ranking 14th globally. What distinguishes Vietnam is not just its high export-to-GDP ratio but also its large population, approximately 100 million, which is nine times larger than that of Belgium, the second-ranked country by this metric with a population of 11.6 million.
Population size is a critical indicator of a country's labor force and economic potential. In Vietnam, goods exports dominate, constituting 82% of GDP, while service exports, primarily tourism and transportation, account for 12%. These figures highlight the direct impact of exports on Vietnam’s economic growth. Favorable export conditions drive GDP growth, while downturns in exports can significantly slow economic progress.
For instance, Vietnam achieved GDP growth rates exceeding 7% in 2018 and 2019, coinciding with export growth rates of 13.2% and 8.4%, respectively. However, in 2023, exports contracted by 4.6%, resulting in a modest GDP growth of only 5%. The relationship between exports and GDP underscores the importance of export performance for Vietnam’s economy.
Beyond direct GDP contributions, exports influence employment and income, which are critical drivers of domestic demand for retail goods and services. The negative export growth in 2023 led to significant job losses and reduced incomes. According to the Ministry of Labor, War Invalids, and Social Affairs, unemployment benefit applications surged to 1.1 million in 2023, nearly matching the peak pandemic levels of 1.12 million in 2020, and far exceeding the pre-pandemic averages of 770,000 and 850,000 in 2018 and 2019, respectively.
This job market instability curbed consumer demand, with the retail sales index rising only 7.1% in 2023, despite low interest rates and a VAT reduction to 8% on most consumer goods. For comparison, retail sales grew over 9% annually from 2017 to 2019 when interest rates and VAT were higher. For instance, the 12-month deposit interest rate at state-owned banks was 6.7% in 2018 and 7.1% in 2019, while in 2023, it averaged only 6.1%, dipping below 5% in the last four months.
Prospects in Key Export Markets
Exports, as the main economic driver, depend heavily on the demand from developed economies like the US, EU, South Korea, and Japan, which collectively account for 53% of Vietnam’s export value. The contraction in exports to these markets in 2023—down 11.3% to the US, 6.7% to the EU, 2.9% to South Korea, and 3.9% to Japan—slowed Vietnam's overall economic growth.
However, forecasts for 2024 and 2025 indicate a rebound in these economies, with projected growth rates of 1.7% and 1.8%, respectively. The World Trade Organization (WTO) projects global merchandise trade to grow by 2.6% in 2024 and 3.3% in 2025, reversing the 3% decline seen in 2023. Improved purchasing power in developed countries has already positively impacted Vietnam’s economy, with goods exports rising by 15.2% in the first five months of 2024, compared to an 11.7% decline in the same period in 2023. Exports to the US, EU, South Korea, and Japan have all rebounded, growing by 34.7%, 16.3%, 8.2%, and 7.5%, respectively.
The US, Vietnam’s largest export market, accounting for over 25% of its export value, provides a clear illustration of these dynamics. In 2021 and 2022, US importers significantly increased imports to offset supply chain disruptions caused by the COVID-19 pandemic. By 2023, as pandemic concerns waned, these importers reduced orders to manage excess inventory, resulting in a $160.5 billion (5.1%) decline in US imports, with consumer goods—Vietnam’s main export items—falling by $80.6 billion (9.6%).
In 2024, however, US import trends have turned positive, with a 1.7% increase in the first four months of the year. This shift explains the resurgence in Vietnam’s exports to the US, contributing to the broader recovery in Vietnam’s export sector.
The positive export performance has translated into tangible economic benefits. Vietnam’s GDP growth in the first quarter of 2024 reached 5.66%, a significant improvement from the 3.32% growth in the first quarter of 2023. The number of first-time unemployment applications also dropped to 168,000 in the first quarter of 2024, the lowest in 10 quarters, reflecting improved employment conditions and business activities.
Vietnam’s export sector is once again proving to be a vital engine of economic growth. The interdependence between export performance and economic health highlights the critical role of international trade in driving Vietnam’s recovery. As developed economies continue to recover, the outlook for Vietnam’s exports remains positive, promising further economic gains.
However, the volatility of global markets underscores the need for strategic diversification and strengthening of domestic economic foundations. By capitalizing on the current export momentum and addressing structural challenges, Vietnam can sustain its growth trajectory and enhance economic resilience.
As the global economic landscape evolves, Vietnam's ability to navigate these changes will be crucial. Continued investment in trade partnerships, infrastructure, and workforce development will be key to maintaining export competitiveness and driving long-term economic prosperity.
