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Vietnam is a densely populated, emerging economy that has implemented market-oriented reforms since 1986 and benefited from large foreign direct investment inflows since its accession to the World Trade Organization in 2007. Macroeconomic conditions have become more stable since the mid-2010s, and real GDP growth averaged 6.9% in 2014-2019. Continued foreign direct investment (FDI) inflows have led the export industry to expand rapidly, diversify toward higher value-added products and integrate the regional supply chain. The current account balance posts surpluses and external liquidity has strengthened gradually. Public finances also improved in the few years prior to the Covid19 shock thanks to fiscal consolidation efforts and slow privatisation of state enterprises. On the negative front, vulnerabilities have remained, including Vietnam’s high credit risks resulting from the excessive debt of corporates (state enterprises in particular) and banks’ very weak capital buffers. Asset quality problems could rise in the short term.

Vietnam successfully contained the COVID-19 epidemic in 2020 and both the export sector and domestic demand proved to be resilient. However, the country was hard hit the new resurgence of contaminations in summer 2021, which in turn constrained industrial and services activity. Given its very high degree of trade openness, Vietnam is vulnerable to US-China tensions. However, Vietnam is likely to attract new FDI projects from corporations seeking to move their production centres outside of China.