As Vietnam enters the second half of 2026, the central question is whether its economy can achieve double-digit annual GDP growth while keeping inflation under control and preserving macro-economic stability. The challenge is not in choosing between growth and stability but in finding the right policy mix to deliver both at the lowest possible cost.
Much of the recent debate has focused on expanding public investment, accelerating credit growth, and mobilizing additional investment capital to create more room for growth. These remain essential macro-economic policy tools. Yet simply injecting more capital into the economy is unlikely to produce the desired results if policymakers overlook two fundamental issues: the economy’s capacity to absorb investment and the efficiency with which resources are allocated.
Without addressing those constraints, the impact of stimulus measures will gradually diminish while inflationary pressures and broader macro-economic risks become more pronounced. That makes it essential to identify the economy’s real bottleneck.
Identifying the bottleneck
For the remainder of 2026, the primary constraint is unlikely to be on the supply side. Rather, the bigger challenge lies in the sluggish recovery of aggregate demand.
Many manufacturers continue to operate with spare capacity, suggesting that production capability is not the immediate problem. In many cases, businesses have scaled back operations not because they are unable to produce but because orders remain scarce, cash flow is under pressure, and consumer demand has yet to recover sufficiently.
Demand-side indicators point to the same conclusion. Household consumption, which accounts for roughly 63 per cent of GDP, continues to recover at a modest pace. Retail sales of goods and consumer services have grown more slowly than in the same period last year, indicating that domestic spending has yet to generate enough momentum to drive a broader acceleration in production.
External demand has also become less supportive. Global consumption remains subdued, while protectionist measures and trade barriers continue to proliferate. More significantly, Vietnam’s goods trade balance slipped into deficit early this year, with the gap widening in subsequent months. The shift suggests that exports, long one of the economy’s most reliable growth engines, are no longer providing the same level of support as in previous years.
Recognizing where the bottleneck lies is critical because it determines the policy response. If the economy is seen as suffering from insufficient production capacity, the instinct will be to expand investment as aggressively as possible. However, if weak demand and limited market absorption are the main constraints, the priorities become markedly different.
In that case, policymakers need to do more than mobilize additional capital. They must revive domestic and external demand while improving the economy’s ability to absorb investment so that every dollar of capital translates into higher productivity, greater productive capacity, and more sustainable growth.
Current growth drivers
The priority for the remainder of the year is not to search for new engines of growth but to make better use of the five that already exist.
Household consumption remains the most important. Accounting for around 63 per cent of GDP, it is the single largest contributor to economic activity. Stronger consumer spending translates into higher business revenues, increased production, more jobs, and rising incomes, creating a self-reinforcing cycle that supports broader economic expansion. With exports facing mounting headwinds, unlocking the purchasing power of Vietnam’s 100 million consumers has become not only a way to support businesses but also a strategic imperative for strengthening domestic growth.
Public investment is the second major driver. As the government’s most powerful policy instrument, it plays a critical role in sustaining growth through infrastructure development, job creation, and crowding in private investment. However, the effectiveness of public investment should not be judged solely by the pace of disbursement. A more meaningful measure is whether projects improve logistics, raise productivity, expand productive capacity, and generate lasting economic value. Speed matters, but the quality of spending matters even more.
Bank credit remains the third pillar. With capital markets still developing, businesses continue to rely primarily on bank financing. The key issue is therefore not how quickly credit expands but whether companies are able to absorb the additional funding and whether that capital reaches the sectors capable of generating the highest returns. Credit directed toward technological upgrading, productivity gains, and manufacturing expansion can deliver stronger economic growth while limiting inflationary pressure. By contrast, lending that fails to reach productive activities weakens policy effectiveness and increases risks to macro-economic stability.
FDI continues to provide another important source of growth, though the emphasis should extend well beyond the headline value of registered capital. The greater question is whether foreign investment strengthens domestic supply chains, encourages technology transfer, develops support industries, and improves labor productivity. These are the factors that determine the long-term contribution of FDI to the economy.
Exports complete the five growth drivers, but their outlook has become considerably more challenging. Weak global demand, intensifying trade competition, and increasingly stringent requirements on product origin, intellectual property, and labor standards are making it harder for exporters to maintain previous growth rates. Exports will remain a key pillar of the economy, but they are unlikely to provide the same level of momentum they delivered in earlier years.
Taken together, these five drivers demonstrate that Vietnam is not running short of growth engines. Rather, each faces its own constraints. Consumption needs to recover, but stimulus cannot be pursued indiscriminately. Public investment should accelerate, but disbursement targets cannot become an end in themselves. Credit growth remains necessary, provided it is matched by businesses’ capacity to absorb capital and put it to productive use.
Similarly, Vietnam should continue attracting FDI that strengthens domestic industrial capabilities rather than simply boosting investment statistics. Exports also require continued policy support, but success will increasingly depend on how well businesses adapt to a rapidly-evolving global trading environment.
Balancing growth and stability
At its core, macro-economic management is about balancing the trade-off between growth and stability. That challenge will define economic policymaking in the second half of 2026.
For a highly open economy such as Vietnam, every policy decision involves trade-offs. Faster growth requires stronger investment, greater credit expansion, and policies that stimulate aggregate demand. However, when demand grows more quickly than the economy’s productive capacity, inflationary pressures inevitably build. The risks do not stop there. Pressure on the exchange rate, a widening trade deficit, rising non-performing loans, and financial instability can all become more pronounced. These are inherent features of a market economy.
The question, therefore, is not whether trade-offs exist, but how effectively they can be managed. That question has become even more pressing as Vietnam enters the second half of the year.
On one hand, the economy needs stronger growth to generate jobs, raise incomes, and reinforce business confidence. On the other, policymakers must contend with a growing list of external and domestic risks. Global energy prices are expected to remain elevated, imported inflation continues to pose a threat, and exchange rate pressures could intensify if international interest rates stay higher for longer. At the same time, expanding public investment and credit without improving the efficiency of capital allocation would only add to inflationary pressures and increase risks to macro-economic stability.
This balancing act has become the defining challenge for economic management. How difficult that trade-off becomes, however, depends largely on the quality of policymaking. When capital is directed toward sectors with high productivity, strong value-added potential, and the capacity to expand production, the economy can achieve faster growth while containing inflationary pressure. Conversely, inefficient allocation means the same amount of investment generates weaker growth but creates greater financial and macro-economic risks.
That is the fundamental difference between managing the economy by expanding the volume of capital and managing it by improving the quality of capital allocation. For that reason, macro-economic policy should shift its focus from asking, “How can we mobilize more capital?” to a more fundamental question: “How can every dollar of capital generate greater productivity, higher value-added, and stronger competitiveness?” Answering that question is the most effective way to reduce the cost of the trade-off between rapid growth and macro-economic stability. It also points to the need for a new approach to managing capital flows.
Rethinking capital allocation
The analysis suggests that Vietnam’s challenge today is not simply a shortage of capital. Rather, it is the need to allocate available resources more efficiently. In other words, economic management should move beyond expanding the pool of financial resources and instead focus on creating new sources of sustainable growth. That transition should be guided by three broad priorities.
The first is shifting from expanding capital to strengthening the economy’s capacity to absorb it. Faster credit growth alone will do little to stimulate the economy if businesses lack orders, are unwilling to invest, or are unable to expand production. Improving capital absorption therefore begins with creating a more favorable business environment, reducing compliance costs, removing institutional bottlenecks, and strengthening business confidence. Once firms regain the confidence to invest, capital will naturally flow toward productive sectors.
The second priority is moving from allocating capital according to scale to allocating it according to expected productivity. The key question should not be how much funding a project receives, but how much additional productivity, value-added, and competitiveness it creates.
The same principle applies not only to public investment but also to bank lending and FDI attraction. When productivity becomes the central criterion for resource allocation, Vietnam can improve the quality of economic growth while easing inflationary pressures over the medium and long term.
The third priority is shifting from measuring policy success by the amount of capital deployed to evaluating the outcomes it delivers. Credit growth, public investment disbursement, and total social investment remain important indicators, but they should not be the ultimate benchmarks of success.
More meaningful measures include how many jobs are created, how much labor productivity improves, how effectively innovation is encouraged, how much domestic value-added is generated, and how significantly business competitiveness is strengthened. These outcomes provide a far more accurate assessment of the quality of economic management. Effective policymaking is not about eliminating trade-offs altogether. It is about minimizing their cost through smarter and more efficient allocation of resources.
Next growth model
Policy discussions in Vietnam have long centered on how to mobilize more resources for development. As the country enters a new stage of economic development, the more important question has become how every dollar of investment can be transformed into higher productivity, more advanced technology, greater value-added, and stronger competitiveness?
The answer extends well beyond fiscal or monetary policy. It depends on the quality of institutions, the business environment, national governance, and the ability to coordinate policy effectively across government.
Rapid economic growth remains a legitimate aspiration, while macro-economic stability remains an indispensable prerequisite for sustainable development. The two objectives are not mutually exclusive. What ultimately determines whether they can be achieved together is the quality of resource allocation.
The size of available capital may influence the pace of growth in the short term, but it is the efficiency with which that capital is deployed that determines the resilience and sustainability of growth over the long run. Rethinking the management of capital flows is therefore not only an immediate priority for the second half of 2026 but also a critical step toward building a new growth model driven by productivity, innovation, and competitiveness in Vietnam’s next phase of development.
(*) Dr. Nguyen Bich Lam is the former Director General of the General Statistics Office (now the National Statistics Office at the Ministry of Finance.
Google translate