Vietnam will still be the growth engine of ASEAN, but the real test lies in "what comes after high growth"

Vietnam Will Remain ASEAN’s Growth Engine, but the Real Test Lies in “What Comes After High Growth”

The World Bank’s latest assessment gives Vietnam’s economy a cautiously optimistic outlook: against a backdrop of greater external uncertainty, Vietnam is still expected to remain one of ASEAN’s strongest growth performers in 2026. According to the bank’s forecast, Vietnam’s economy will grow by 6.8% in 2026, following an expected expansion of 8% in 2025. From a regional perspective, this is not merely the cyclical performance of a single country, but a reflection of manufacturing realignment in ASEAN, cross-border capital reallocation, and the regionalization of supply chains.

Vietnam continues to attract attention not because of its high growth rate in any single quarter or year, but because it increasingly resembles a regional production platform: exports, foreign investment, public investment, services, and consumption jointly support growth, manufacturing’s share of GDP continues to rise, exports of electronics and technology products remain strong, and the share of AI-related exports has also increased significantly. For ASEAN, this means Vietnam is no longer just a destination for “receiving transfers,” but is taking on a more important role as a midstream manufacturing and assembly node in the new division of industrial labor.

In ASEAN’s supply chain restructuring, Vietnam’s gains are no accident

One of the most obvious changes in ASEAN over the past few years has been the reallocation of capacity by multinational companies under the China+1 strategy. Vietnam has become a beneficiary for a simple reason: its geographic location, openness, industrial base, free trade network, and steadily improving infrastructure prospects have made it highly attractive in electronics, machinery, consumer goods, and some high value-added manufacturing sectors.

The World Bank noted that Vietnam’s investment growth in 2025 reached 8%, with an important backdrop being the increase in FDI related to regional supply chain diversification. In 2025, Vietnam’s registered foreign investment reached US$38.4 billion, while actual disbursed capital hit a record US$27.6 billion. In the first quarter of 2026, newly registered FDI rose 36% year on year to US$15.2 billion, with manufacturing accounting for 61%. This shows that capital has not left manufacturing under global uncertainty; instead, it is increasingly flowing to countries capable of absorbing capacity diversification and integrating into regional supply chains.

From the perspective of ASEAN industrial chain division, Vietnam’s role is becoming more “platform-like”: it is both a concentration point for electronics manufacturing and export processing, and an important entry point for capital from Japan, South Korea, Singapore, and others into ASEAN’s manufacturing network. The mention of Korean and Singaporean electronics and liquefied natural gas projects also reflects regional capital’s long-term bet on Vietnam’s industrial capacity.

But this kind of growth also has structural characteristics: Vietnam is strong in export-oriented manufacturing, but weak in absorbing local supply chains. In other words, the more deeply it is embedded in global value chains, the more it needs to solve the binary structural problem of “strong foreign capital, weak domestic capital.” Otherwise, growth will continue, but value retention may remain insufficient.

From an “export powerhouse” to a “regional industrial center,” what is lacking is not scale, but endogenous capacityVietnam’s export growth in 2025 was 16%, reaching $475 billion, equivalent to 93% of GDP. This is a very high degree of outward orientation, sufficient to show that its economic performance is highly dependent on external demand and transnational manufacturing networks. Imports grew by 17% over the same period, reflecting manufacturing firms’ continued procurement of intermediate goods for export production. In other words, Vietnam’s growth model still rests on strong external orders and imported inputs.

This model is highly competitive when global demand is stable, but it is also the most vulnerable to trade frictions, energy shocks, or weakening end-demand. The World Bank has already warned that global trade uncertainty, geopolitical tensions, and rising oil prices triggered by Middle East conflicts will all increase transportation, logistics, and input costs. For an economy like Vietnam’s, which is highly trade-dependent, rising costs are not simply an inflation issue; they create linked pressure on export orders, manufacturing profit margins, and investment decisions.

What is even more worth watching is that Vietnam is in a phase of “transitioning from order-taking capacity to upgrading capacity.” Manufacturing value added has grown strongly, and manufacturing’s share of GDP has risen to around 25%, but what will truly determine its regional competitiveness is not just the number of factories or the scale of exports, but whether it can form a complete industrial ecosystem supported by local components, engineering services, logistics, finance, R&D, and professional talent.

If this ecosystem is not fully developed, Vietnam will continue to be one of ASEAN’s most important manufacturing destinations, but it may not smoothly evolve into a regional center with stronger industrial pricing power.

The rise of AI-related supply chains shows that Vietnam is entering a new window of technological spillover

The World Bank noted that the share of Vietnam’s exports of AI-related goods in GDP has risen from about 20% in 2023 to about 32% in 2025, a globally high level. The significance of this figure goes far beyond simply “an increase in high-tech exports.”

It indicates that Vietnam is embedding itself in supply-chain segments with higher technological intensity, and this has spillover effects on ASEAN’s industrial structure. Production networks for semiconductors, electronic components, server equipment, smart terminals, and related supporting products often drive upgrades in upstream and downstream logistics, precision manufacturing, testing and certification, industrial-park services, and port transportation capacity. If Vietnam can steadily expand these industrial linkages, it has the potential to form a deeper electronics cluster within ASEAN.

But the risks are equally clear. High-tech manufacturing places higher demands on energy stability, workforce skills, data governance, infrastructure reliability, and the regulatory environment. If Vietnam’s competitive advantage remains limited to cost and its ability to absorb production, then once the global technology cycle turns, growth volatility will expand rapidly. By contrast, if reforms can push local firms into higher tiers of the supporting ecosystem, Vietnam will be not just a foreign-invested manufacturing base, but potentially an important pivot for ASEAN’s digital manufacturing upgrade.

Public investment is filling gaps, but the real challenge is “turning money into capability”Vietnam’s other current support pillar is large-scale public investment. The World Bank points out that Vietnam plans to invest about US$320 billion over the next five years in logistics, transportation, and connectivity infrastructure. This direction is highly relevant to ASEAN’s regional development, because infrastructure is not an internal variable of a single country, but an important condition that determines whether regional supply chains can function smoothly.

For Vietnam, improvements in ports, roads, industrial parks, cross-border logistics, and urban infrastructure will directly affect whether it can further absorb the relocation of manufacturing from ASEAN and the world. For neighboring countries, Vietnam’s infrastructure upgrades will also change regional cargo flows, industrial clustering patterns, and capital allocation choices.

But the World Bank also warns that the key to reform lies in implementation, financing, and continuity. Over the past year, Vietnam has introduced a large number of laws and decrees covering administrative simplification, taxation, customs, digital governance, the judiciary, and bankruptcy制度 in multiple areas. The question is whether these reforms can truly lower transaction costs, improve business expectations, and enable the domestic private sector to enter foreign-invested supply chains more effectively.

If reforms remain only in the legal text and cannot be translated into higher approval efficiency, better financial access, easier land acquisition, greater compliance transparency, and more predictable judicial outcomes, then public investment and institutional reform will struggle to generate a real multiplier effect.

What ASEAN most needs to watch is not Vietnam’s growth rate itself, but whether it can drive coordinated regional upgrading

Vietnam’s rapid growth is not an isolated event for ASEAN, but a regional signal. First, it confirms that ASEAN still retains appeal in the global industrial chain restructuring process. Second, it shows that manufacturing relocation has not ended, but is instead concentrating in economies with open institutions, upgraded infrastructure, and policy continuity. Third, it reminds us that competition within ASEAN is shifting from “who is cheaper” to “who can build a complete ecosystem faster.”

What does this mean for regional coordination?

On the one hand, Vietnam’s rise will strengthen the depth of ASEAN’s manufacturing network, allowing the region to form more specialized divisions of labor: some countries will be more resource- and energy-oriented, some more focused on assembly manufacturing, and others more centered on consumption and services. On the other hand, Vietnam will also intensify investment competition with neighboring countries, especially in electronics, machinery, components, and new industrial parks. Future competition within ASEAN may not be zero-sum, but it will certainly depend more on whether countries can improve connectivity, rules-of-origin coordination, and supply chain stability under the RCEP framework.

In the long run, whether Vietnam can move from a “foreign-investment growth model” to a “deep domestic enterprise participation model” will determine whether its position in ASEAN remains at the manufacturing absorption tier, or whether it further upgrades into one of the region’s industrial organizers.

Risks have not disappeared; the cycle, inflation, and external balance are all testing policy capacity at the same timeVietnam’s challenges in 2026 are concentrated in three areas that are all coming under pressure at the same time: external demand, energy prices, and financial stability. In the first quarter, it posted its first quarterly trade deficit in five years, amounting to US$3.7 billion, indicating that import growth has already outpaced exports. On the currency front, the dong has depreciated by more than 3% against the U.S. dollar this year, while foreign exchange reserves are roughly equivalent to two months of import coverage. At the same time, inflation has picked up on rising fuel prices, reaching 4.7% in March and rising further to 5.5% in April.

This means that even if Vietnam continues to maintain relatively high growth, it must find a new policy mix among growth, prices, exchange rates, and external balance. For a highly open economy, an oil shock is often not just a cost issue; it also affects import bills, business expectations, consumer confidence, and capital flows.

More importantly, the World Bank points out that Vietnam’s domestic enterprises remain highly fragmented: 98% of local firms are small or informal, only 17% participate in exports, while firms linked to global value chains account for a disproportionately large share of exports and value added. The disconnect between foreign-invested firms and local firms remains the core bottleneck determining whether Vietnam can achieve higher-quality growth.

Conclusion: Vietnam’s real task is to turn an “ASEAN growth bright spot” into a “regional capability center”

Vietnam’s current economic performance is enough to continue supporting its position as one of ASEAN’s most closely watched manufacturing destinations. But viewed over a longer cycle, what will really determine its future is not whether it can keep outperforming the regional average in 2026, but whether it can build stronger domestic supporting capacity, industrial linkages, and policy execution capacity beyond foreign-invested-led growth.

For ASEAN, Vietnam’s significance is also changing: it is no longer just a growth story, but a case study in regional supply chain restructuring, manufacturing upgrading, and institutional capacity building. Over the next few years, whether Vietnam can transform its export advantages, foreign investment dividends, and infrastructure investment into broader productivity gains will directly affect the reshaping of the industrial map within ASEAN.

In other words, what Vietnam faces today is not only uncertainty in the external environment, but also how to make the leap under uncertainty from “fast growth” to “stable, deep, and internally driven growth.”