Vietnam in H1: Economic Report Card Shows Mixed Results

Posted by Written by Mark Barnes Reading Time: 8 minutes

For Vietnam, the first six months of the year have been filled with peaks and troughs. Here’s what happened, the country’s response, and what investors can expect moving forward.

Vietnam’s economy did not start 2023 in a great place. The truth is, it was struggling broadly with lower demand in key export markets weighing on its manufacturing industry, tourist visa limitations and an ongoing closed border with China stifling the tourism industry’s recovery, and an intense desire to keep the Vietnamese dong stable coming at the cost of business borrowing. As a result, it was unclear how 2023 would unravel for Vietnam’s economy.

Overall, the first six months of the year have been a mixed bag. On one hand, GDP growth forecasts from key institutions, along with imports, exports, and FDI have slumped. On the other hand, these troubling circumstances led to an upward swing in mergers and acquisitions and attempts to stimulate the economy through a reduction in administrative costs.

Indeed, despite the current economic challenges, there is still an abundance of value to be found in the Vietnamese economy. That said, understanding these challenges and how both government and businesses are responding, is critical to maximizing a firm’s advantage.

With this in mind, here are the key developments in the first six months of 2023 that foreign firms looking to invest in Vietnam should be aware of.


The year 2023 kicked off with a seismic shift at the upper echelons of the Vietnamese establishment with the resignation of Prime Minister Phuc Xuan Nguyen.

The leader, who had been in power for just under two years, had reportedly found himself tied up in a corruption crackdown. As a result, he announced he would be stepping down and quietly disappeared from public view.

But this announcement was somewhat overshadowed by the Lunar New Year (known locally as Tet), which followed just days later. In 2022, Tet had been a cause for celebration. With Vietnam more or less free of prolonged COVID-19 lockdowns, factories were moving hammer and tong to clear backlogs and workers were enjoying bigger pay packets as a result of an abundance of overtime.

A lunar year later, in January of this year, it was a very different story.

From the beginning of the fourth quarter of 2022, Vietnam had seen layoffs around the country in technology, real estate, and manufacturing. This was mostly attributed to the war in Ukraine, which had driven inflation up, and subsequently consumer spending down, in Vietnam’s key export markets.

S&P Global’s Purchasing Managers Index for January registered 47.4 up from 46.44 in December but still not good. Despite the slight improvement, it was still well below 50, which is where the sector breaks even.

January also saw the first license issued to establish a sports betting business – endowed to Vietnam’s national lottery provider, Vietnam Lottery. This was another in a long line of changes in Vietnam’s gambling sector that have taken place over the last decade. (See: Legalized Gambling in Vietnam: An Overview).

See also: Challenges Facing Vietnam’s Garment Industry: Omen or Opportunity?


Vietnam went back to work after the Lunar New Year well-rested and raring to go. Despite the challenges that had faced the emerging economy at the start of the year, there was a renewed sense of optimism encapsulated in Resolution 16/NQ-CP, which laid out the government’s economic targets for the year.

Among them, GDP growth was set at between 6 to 6.5 percent. This was ambitious. Whereas in 2022, GDP growth in Vietnam had hit a staggering 8.02 percent in 2022, this was from a relatively low base—prolonged COVID-19 lockdowns in 2021 had slowed economic growth down to barely a trickle. A big part of that 8.02 percent, therefore, was simply carry-over from 2021.

Furthermore, the target for the consumer price index (CPI) had been set at 4.5 percent. Registering 4.9 percent CPI in January (though notably spending is up around the Lunar New Year), this seemed possible; however, it would turn out to be its peak. Over the next six months, both CPI and GDP growth would embark on a downward trend.

On a more molecular level, in February, it was widely reported that Netflix was preparing to open a local office. Whereas for most companies this would be a somewhat innocuous development, as the first among a number of major US cross-border service providers to make the move, this was news. Regulations requiring foreign cross-border service providers to open local offices had been on the books for some time, but most big international tech firms had yet to fulfill these obligations. In this respect, Netflix was somewhat of a trailblazer.

Learn more: Netflix Vietnam: A Rocky Market Entry Explained


The tourism industry, once a cash cow for Vietnam, had struggled to recover from COVID-19 border restrictions. This was due to a number of reasons, not least of which was that the border with China, Vietnam’s biggest source of foreign tourists in 2019, was still closed to Chinese tourists that wanted to visit their neighbor to the south.

On March 15, however, China changed its tune and added Vietnam to a list of countries to which Chinese tourists were approved to travel.

In Vietnam, tourism and hospitality operators let out a collective sigh of relief anticipating the vast throngs of tourists that would be headed their way. There were, however, some caveats for Chinese travelers and it would take a little time for the returns on this change in policy to be realized, but it was a welcome change, nonetheless.

It was, however, already too late for many businesses in the sector, with a number of hospitality firms leaving the market. This was epitomized by the announcement that Hanoi’s famous gold hotel was on the market for a cool US$250 million.

And it wasn’t just hotels that were coming up for sale. The real estate sector was also struggling for a broad range of reasons (see: Vietnam’s Real Estate Market Turmoil Explained) with real estate firms, as a result, looking for foreign investors. This hit a fever pitch in March as reports came in that Singapore’s Capital Land was in talks with Vietnam’s Vinhomes to acquire US$1.5 billion worth of its real estate assets. But this has not happened, yet.

Indeed, there were challenges facing businesses across most sectors and it was becoming increasingly clear that stimulus would be needed. This was not lost on key decision-makers either, with the State Bank of Vietnam embarking on the first of a series of interest rate cuts to stimulate economic growth.

See also: Vietnam’s Tourism Industry’s Long Road to Recovery: Explained


Trade deals were the flavor of the month in April, with Vietnam announcing it had wrapped up negotiations on a free trade deal with Israel, that it had signed an agreement to begin negotiating a free trade agreement with the United Arab Emirates and with Argentina. Furthermore, the United Kingdom’s ascension to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) had also been confirmed.

This was good news for exporters though the impacts would not be realized for some time. In the meantime, it was becoming clear that further stimulus and support would be needed to keep the economy humming along.

As such, the idea of reducing the value-added tax (VAT) from 10 percent to 8 percent was floated and tax deadlines were extended.

The Provincial Competitive Index, in its 18th year, was also released in April. Notably, HCMC and Hanoi took a hit in 2022; however, it was business as usual in Quang Ninh, which continued to top the rankings. It’s young skilled workforce and high levels of education and training, and high quality of economic governance pushing it over the line.

Read more: Vietnam’s Provincial Competitiveness Index 2022: Key Takeaways


Arguably the biggest regulatory news so far this year was the PDP8. Over two years past due, this outline for the future development of Vietnam’s energy sector was finally approved in May.

See also: Vietnam Government Approves Power Development Plan 8

This was a major breakthrough for the power sector. With structured guidance for developing grid infrastructure and power generation projects, investors could move forward with confidence. The agreement would essentially see gas power take center stage, moving forward, and Vietnam weaning itself off coal.

At the same time, however, it was also being reported that northern Vietnam could be facing power shortages over the summer, with a range of reasons cited from a lack of water in hydropower reservoirs to coal shortages.

But it wasn’t just the electricity sector facing problems. Domestic food and beverage firms were reportedly reaching breaking point, facing high-interest rates and challenges raising capital. It made sense then, that, like its real estate sector counterpart, the food processing sector was also on the hunt for foreign investors. (see: Investing in Food Processing in Vietnam for EU Firms)

See also: Explained: Vietnam’s Electricity Sector Past, Present, and Future


At the beginning of June, the predictions of future power shortages came true. Parts of northern Vietnam were forced to endure power shortages for hours at a time as power generators and grid infrastructure struggled to meet surging demand.

To remedy this, coal and electricity imports will reportedly be increased over the next six months.

See also: Mitigating Power Shortages in Vietnam: How Businesses Can Prepare

But remedies for the sputtering economy were much more specific.

The VAT, for example, was cut from 10 percent to 8 percent. Thirty-six fees and charges applicable across a broad range of industries were reduced by up to 50 percent and car registration fees were slashed in half as well.

Furthermore, on June 19, interest rates were cut once again in order to boost the local economy.

To that end, Vietnam’s GDP growth for the first half of the year registered just 3.72 percent. This was well below the 6-6.5 percent target, which means that Vietnam will have to average over 8 percent growth for the rest of the year to hit its targets.

Two-way trade also saw a decline in the first half of 2023. At US$317 billion, it was down just over 15 percent compared to the first half of 2022.

All of that said, FDI did not take a considerable hit. In the first six months of the year, it was only down around 4 percent from a year earlier. This is a positive sign for foreign firms, suggesting that their peers in Vietnam are not shying away from a market that will likely return to its pre-COVID break-neck speed of development in the not-too-distant future.

Overall, headed into the second half of the year, the challenges Vietnam face are clear, but the opportunities remain strong.

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What to watch moving forward

With all of this in mind, there are a few key developments boiling away that are worth watching in the final half of the year.

Global minimum tax (GMT)

In the first half of this year, there was a lot of talk as to how Vietnam would respond to the GMT. The EU and South Korea have both passed legislation that will see them applying the GMT from January 1 2024 and this means that if Vietnam doesn’t have a response in place by then it will miss out on what could be millions of dollars of tax revenue. With this in mind, it is very likely changes will be made to Vietnam’s tax incentives scheme before the end of this year.

See also: Global Minimum Tax Vietnam: Progress Report

Mergers and acquisitions

With the current turbulence in the local economy, many firms are looking to sell up or seek strategic investments from foreign players. This is in industries across the board from real estate and manufacturing to tourism and food processing. In the current climate, astute firms, with the right advice, can form partnerships and make acquisitions on very attractive terms.

Notes for foreign firms

Monitoring regulatory changes is important. With a number of expansionary fiscal policies already in place and more likely on the horizon, understanding what these are and how they can best be utilized may be critical as to the extent to which they can benefit foreign firms. With this in mind, firms should monitor the local press and subscribe to the Vietnam Briefing.

Understanding tax cuts and stimulus measures can be tricky. From a 2 percent VAT cut to reducing 36 fees in a broad range of sectors by up to 50 percent, the government is actively pursuing reduced establishment and operating costs for businesses. The Circulars and Decrees that detail these stimulus measures, however, can be difficult to understand and interpret. Firms in need of support should contact the tax experts at Dezan Shira and Associates.

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