Vietnam’s GDP growth and the emerging middle class

A lot is spoken about the growth of the middle class in Vietnam and the fact that this is a key driver for Investment into retail, healthcare and education and also the reason given, by the optimistic investors and developers in the real estate sector, as to why there is not a bubble building on the supply side.

During a recent speech to the National Assembly, Prime Minister Nguyen Xuan Phuc stated that on current trends GDP in 2045 is forecast to reach US$ 2.5 trillion with an average per capita income of US$ 18,000[1].  This compares to Vietnam’s per capita GDP, in 2017, of US$ 2343 and that of the Philippines US$ 2988, Indonesia US$ 3846, Thailand US$ 6593 and Malaysia US$ US$ 9944[2].

In the last 3 decades Vietnam has managed and average yearly growth in GDP of over 6% with the size of the economy expanding more than 17 times[3]. At the beginning of the 90’s just after the advent of Doi Moi Singapore’s per capita income was 125 times that of Vietnam (US$ 200) but at the end of 2017 it was only 24 times. Similarly Thailand has fallen from 16 times to 2.5 times. Nevertheless Vietnam does face the dreaded middle income trap and is now at a very difficult juncture and needs to address the issues that could impact this. With a reducing growth rate in the labour force, as families reduce in size there must be a real focus on improvement in labour productivity and the Government is looking to the 4^th Industrial Revolution to help drive this.

In his speech the Prime Minister noted some of the Government priorities, which included a focus on ensuring a stable macro-economy, controlling inflation, economic policies to boost the private sector, streamlining the public sector work force and investing in education and healthcare.

Achieving this would of course would represent an amazing achievement with many challenges to be addressed, including many of the things on the current Government’s agenda, such as infrastructure improvement, improved business climate, reducing the administrative burden on companies, promoting SME development and improved transparency etc.

Kenneth M Atkinson