Vietnam unlocks domestic demand to spur growth

Facing export headwinds and tariff uncertainties, Vietnamese businesses are shifting to the domestic market.

While some enterprises once allocated just 10%–20% of their production to local consumption, some now dedicate up to 95%. These businesses seek cost-effective input materials and develop products tailored to local tastes.

Most of May 10 Corporation's production lines previously served export orders. Now, the company is designing new models and opening more stores to cater to Vietnamese customers.

According to Nguyen Thi Phuong Thao, the company's Chief Operating Officer, May 10 is increasing its domestic presence to balance it with exports. Additionally, reducing operational costs and upgrading equipment would improve productivity and competitiveness.

To expand their market reach, businesses are diversifying their distribution channels from physical outlets to e-commerce platforms, increasing their brand visibility and retail sales.

Dau Anh Tuan, Deputy Secretary General of the Vietnam Chamber of Commerce and Industry (VCCI), said that domestic demand will be crucial for economic resilience in 2025. Consumption together with exports, and public investment becomes key pillars for the government’s GDP growth target of 8% this year. Domestic consumption is expected to contribute 60% to 65% of GDP. 

In the first quarter of 2025, the total retail sales of goods and services were VND1.708 quadrillion (US$67.3 billion), up 9.9% from the previous year. Currently, household spending accounts for 53% to 57% of Vietnam’s GDP. However, the pace has yet to return to the double-digit growth seen before the pandemic.

Boosting purchasing power

In order to reach the target of 12% growth in retail sales and services, monthly increases must exceed this threshold. Policymakers have responded by prioritizing domestic consumption through tax cuts, interest subsidies, and spending incentives.

Nguyen Thi Huong, Director General of the General Statistics Office, emphasized the importance of energizing the local market through trade promotion campaigns and digital platforms. She called for increasing the visibility of locally produced goods, strengthening links between producers and retailers, and offering tax and rent relief to consumers and businesses.

Recent US tariff measures have added pressure. Rising input costs could lead to higher domestic prices and weaker consumption. Meanwhile, Vietnamese companies continue to face intense competition from low-cost imports and mass-produced generic items.

Vo Tri Thanh, Director of the Institute for Brand and Competitiveness Strategy, proposed extending the current VAT cut through the end of 2026. He also recommended reducing the VAT rate by 2% on all goods and services currently taxed at 10%. According to Thanh, clear and stable tax policies help businesses plan ahead and adjust pricing without fear of sudden regulatory changes.

Dau Anh Tuan stressed the role of domestic market of over 100 million, calling for stronger consumer protection and stricter enforcement against counterfeit and low-quality goods.

Local experts emphasized the need for businesses to improve their competitiveness, adjust their strategies, and strengthen their brand credibility.

Consumer credit fuels the momentum

Banks' financial support is key to sustaining domestic demand. Consumer lending allows households to spend on housing upgrades, vehicles, education, and daily necessities. These expenditures contribute directly to broader economic activity.

However, consumer loans accounted for nearly 15% of total credit in 2023, but this figure dropped to 12% in 2024. To reverse this trend, the banking sector set a 16% credit growth target for 2025.

Truong Anh Thang, a board member at Eximbank, said that well-designed consumer lending policies could stimulate production and services. He called for lower interest rates and flexible, small-value loans tailored to specific needs, such as purchasing home appliances, paying school fees, and covering healthcare costs.

He encouraged partnerships between banks and retailers to offer zero-interest installment plans and bundled incentives. Such measures could align with national stimulus programs, making credit more accessible to ordinary consumers.

Support should also extend to informal workers and low-income groups. Tailored financing models, including community guarantees and risk insurance, can broaden financial access. Integrating credit into digital ecosystems like e-wallets and cashless payments would further increase reach.

At the macro level, banks recommend allocating specific credit quotas for consumer lending, subsidizing interest rates through state budgets, expanding credit databases, and expediting loan approvals. These efforts would support national stimulus goals and strengthen demand for Vietnamese products.

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