Vietnam Economic Update Report, Q2 2025

Vietnam’s Q2 Growth Nears 8%, Marking Strongest First-Half Performance in 15 Years

Vietnam’s economy accelerated in Q2 2025, posting GDP growth of 7.96% YoY – up from 6.93% in Q1.

This lifted first-half growth to 7.52%, the country’s fastest H1 pace in 15 years. Notably, Q2’s expansion nearly reached the government’s full-year growth target of 8%, reflecting robust momentum despite global uncertainties. The General Statistics Office lauded the positive mid-year performance, noting it was “close to our target amid global and regional economic uncertainties”. Q2 2025’s growth was also Vietnam’s second-highest quarterly rate since 2020, exceeded only by the post-pandemic rebound in Q2 2022 (8.56%).

The growth in H1 2025 was broad-based. The industrial and construction sector expanded around 8.3%, while services grew 8.1%, together contributing over 90% of overall GDP growth. Service-sector output in H1 grew at its fastest first-half pace since 2020, reflecting a strong rebound in tourism and consumer activity. Manufacturing output rebounded strongly, and domestic demand remained solid – retail sales in H1 rose about 9.3% YoY in nominal terms, underpinned by recovering tourism and consumer spending. Inflation stayed moderate: the consumer price index averaged 3.3% in the first six months (core inflation 3.16%), well within target ranges. This benign inflation environment provided room for supportive monetary policy, while keeping consumer purchasing power relatively intact.

Another highlight was surging investment. FDI commitments jumped 32.6% in H1 to $21.5 billion, the highest first-half FDI since 2009. This influx, driven largely by capital expansion in manufacturing and M&A deals, signals sustained investor confidence in Vietnam. It also helped finance ongoing projects, as disbursed FDI reached $11.7 billion (up 8% YoY). Thanks to such tailwinds, Vietnam remained one of Asia’s fastest-growing economies at mid-year.

Looking ahead, authorities acknowledge challenges in the second half. The government has reaffirmed its ambitious 8% GDP growth goal for 2025, but also cautioned that achieving it will be a big challenge amid external headwinds. Global demand remains volatile, and financial conditions are tighter than in previous years. To bolster resilience, policymakers are accelerating public investments and reforms. Prime Minister Pham Minh Chinh in May urged measures to respond to US reciprocal tariffs and ordered faster disbursement of infrastructure projects, while remaining persistent with the 8% growth goal. Overall, Vietnam’s Q2 economic performance showed impressive strength, setting a solid foundation for 2025, even as careful policy management will be required to sustain momentum through H2.

Landmark Administrative Reform Reshapes Governance to Unlock Long-Term Efficiency

A Rapid Restructuring of Vietnam’s Government

In a sweeping move during Q2 2025, Vietnam initiated its most ambitious administrative reform in decades. Framed as a campaign for efficiency and modernization, the Communist Party of Vietnam (CPV) directed a nationwide restructuring that merged provincial-level units and eliminated the district level of government entirely. This came amid a broader political context marked by anti-corruption efforts, leadership consolidation, and ambitions to cut state costs while preparing for long-term economic growth.

The reform drive began with the Party’s Central Committee issuing Conclusions 126 and 127 in February 2025, mandating a streamlined state apparatus. The rationale was overlapping administrative functions, bureaucratic inefficiency, and mounting public sector costs. The Party framed the move as essential for a “powerful, lean, and effective” government, aligning with Vietnam’s 2030 goal to become an upper-middle-income country.

In rapid succession:

• In early May, the National Assembly (NA) passed a resolution initiating constitutional changes and formed a drafting committee.
• On June 12, the NA approved a plan to reduce Vietnam’s 63 provinces to 34, merging most of them and altering decades-old administrative boundaries.
• On June 16, the NA voted unanimously to abolish the district-level government, amending the Constitution. All district-level People’s Councils and offices would cease operation as of July 1.

Within just 43 days, a complex, three-tier governance structure was formally replaced by a two-tier model: provinces (now enlarged) and communes (wards, towns, rural communes). Districts, once the backbone of local administration, were dissolved.

Leaner Bureaucracy, More Local Autonomy

The most immediate outcome is a substantial reduction in the size of the civil service. According to the Ministry of Home Affairs, more than 79,000 public sector positions will be streamlined nationwide, primarily due to the removal of the district level. These include administrative officers, elected officials, and support staff. The reform is expected to lead to significant fiscal savings through reduced payroll and operational costs.

From a governance standpoint, provincial governments now hold greater autonomy and responsibility in managing local development, public services, and regulatory coordination. The new structure is designed to eliminate overlap, reduce delays in administrative processes, and allow decisions to be made and executed more directly.

This reorganization also aligns with Vietnam’s long-standing goal of increasing efficiency and transparency in the public sector. With fewer administrative layers, the government aims to simplify interactions for both citizens and businesses — such as investment licensing, land-use approval, and delivery of public services.

In terms of implementation, the government has issued guidance for provincial authorities on handling transitional issues — including staff reassignment, documentation updates, and service continuity. Local governments are expected to accelerate digital governance initiatives to support the expanded scope of operations at the commune and provincial levels.

Efficiency Gains, But Execution Risks Remain

Vietnam’s government sees this reform as a foundational step toward high-quality growth. With GDP growth of 7.1% in 2024, and a target of 8% in 2025, the country is positioning itself to become a more attractive destination for investment and innovation.

By reducing bureaucratic friction, the reform is expected to boost the ease of doing business, particularly in key sectors such as manufacturing, logistics, and infrastructure. Provincial governments can now operate with greater flexibility, potentially speeding up industrial park development, land allocation, and foreign investment approvals. Investors have often cited Vietnam’s regulatory efficiency as a key advantage; this reform aims to enhance that further.

In addition, public savings from administrative streamlining can be redirected to priority areas like digital transformation, infrastructure investment, and human capital development. For example, the Ministry of Planning and Investment has proposed allocating a portion of the savings to smart governance systems at the commune level, especially in newly merged provinces.

However, the scale and pace of the transition also pose operational risks. With larger provincial jurisdictions and the absence of a middle tier, capacity-building at both the commune and provincial levels will be critical. There is a need for stronger digital systems, better inter-agency coordination, and training programs to help local officials adapt to new roles.

In rural and remote areas, ensuring service accessibility remains a challenge, particularly in health, education, and land management. The government has pledged to monitor implementation closely and provide targeted support where needed.

Overall, this structural reform marks a turning point in Vietnam’s administrative landscape. It reflects the leadership’s long-term view on state modernization and development – building a government that is not only smaller, but also smarter. As the system stabilizes, its success will be measured by how well it delivers on improved efficiency, economic competitiveness, and public service quality.