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Unlocking Vietnam’s Domestic Demand: Igniting the Engine of Growth

10 May, 2025

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THE HANOI TIMES – Amid export challenges and tariff uncertainties, Vietnamese businesses are strategically pivoting towards the domestic market.

A notable shift is evident, with some enterprises increasing their focus on local consumption from a mere 10-20% to an impressive 95% of their production. This strategic move involves seeking cost-effective input materials and customizing products to align with the unique preferences of Vietnamese consumers.

Unlocking the Potential: Vietnam’s Domestic Market Offers Abundant Opportunities. Photo: Kinh te & Do thi Newspaper.

May 10 Corporation, previously oriented towards export orders, is now redesigning its models and expanding its physical presence to better serve the needs of local customers.

Nguyen Thi Phuong Thao, the Chief Operating Officer, shared that May 10 is committed to strengthening its domestic footprint while maintaining a balanced approach with exports. Additionally, the company is focused on enhancing productivity and competitiveness by optimizing operational costs and investing in upgraded equipment.

To broaden their market reach, businesses are diversifying beyond physical stores by embracing e-commerce platforms. This dual-channel approach increases brand visibility and boosts retail sales, ensuring a resilient and dynamic presence in the market.

Dau Anh Tuan, Deputy Secretary General of the Vietnam Chamber of Commerce and Industry (VCCI), underscored the critical role of domestic demand in fostering economic resilience for 2025. Consumption, alongside exports and public investment, stands as a pivotal pillar in the government’s ambitious GDP growth target of 8% for the year. Domestic consumption is projected to contribute a substantial 60-65% of GDP.

During the first quarter of 2025, Vietnam witnessed total retail sales of goods and services reaching VND1.708 quadrillion (approximately $67.3 billion), reflecting a notable increase of 9.9% compared to the previous year. Household spending currently accounts for 53-57% of Vietnam’s GDP, although it has not yet regained the double-digit growth experienced pre-pandemic.

Elevating Purchasing Power

To attain the ambitious target of 12% growth in retail sales and services, monthly increments must surpass this benchmark. Policymakers are actively prioritizing domestic consumption through a combination of tax cuts, interest rate subsidies, and incentives aimed at boosting consumer spending.

Nguyen Thi Huong, Director General of the General Statistics Office, underscored the significance of invigorating the local market through proactive trade promotion campaigns and leveraging digital platforms. She advocated for enhanced visibility of locally produced goods, stronger linkages between producers and retailers, and tax and rent relief for consumers and businesses alike.

Recent US tariff measures have intensified the pressure on Vietnamese businesses. The rise in input costs could lead to a domino effect of higher domestic prices and softened consumption. Simultaneously, Vietnamese companies navigate fierce competition from low-cost imports and mass-produced generic products.

Vo Tri Thanh, Director of the Institute for Brand and Competitiveness Strategy, proposed extending the current VAT reduction through 2026. He also suggested a 2% reduction in the VAT rate for all goods and services currently taxed at 10%. According to Thanh, predictable and stable tax policies enable businesses to plan effectively and adjust pricing strategies without the fear of abrupt regulatory shifts.

Dau Anh Tuan emphasized the untapped potential of Vietnam’s market of over 100 million consumers, calling for enhanced consumer protection and stricter enforcement against counterfeit and substandard goods.

Local experts underscored the imperative for businesses to enhance their competitiveness, fine-tune their strategies, and fortify their brand credibility to thrive in this evolving landscape.

Consumer Credit: Sustaining the Momentum

The financial support extended by banks to consumers is pivotal in maintaining robust domestic demand. Consumer lending empowers households to invest in significant purchases such as housing upgrades, vehicles, education, and daily essentials. These expenditures have a direct and positive impact on the broader economy.

However, there has been a slight decline in consumer loans as a percentage of total credit, falling from nearly 15% in 2023 to 12% in 2024. To counter this trend, the banking sector has set an ambitious credit growth target of 16% for 2025.

Truong Anh Thang, a board member at Eximbank, highlighted the potential of well-crafted consumer lending policies to stimulate production and services. He advocated for lower interest rates and flexible, tailored loan options to meet specific needs, such as purchasing appliances, education, or healthcare.

Thang encouraged collaborations between banks and retailers to introduce zero-interest installment plans and bundled incentives. Such initiatives could be aligned with national stimulus programs, making credit more accessible and attractive to a wider range of consumers.

Financial support should also extend to informal workers and low-income groups through innovative financing models, including community guarantees and risk insurance. Integrating credit into digital ecosystems, such as e-wallets and cashless payments, further enhances financial inclusion and accessibility.

At the macro level, banks recommend dedicated credit quotas for consumer lending, interest rate subsidies, expanded credit databases, and streamlined loan approval processes. These measures support national stimulus goals and foster a stronger demand for locally produced goods and services.