Introduction
Global inflation has become a defining macroeconomic phenomenon in the postpandemic landscape. Surging commodity prices, disrupted supply chains, and volatile energy markets have conspired to elevate costs worldwide. For foreign investors, inflation is not a trivial backdrop — it molds decisions about where to allocate capital, where to manufacture, and where to expand. For Vietnam, the challenge is manifold: global inflationary pressures collide with domestic cost dynamics. And yet, paradoxically, Vietnam still seems to draw strong Foreign Direct Investment (FDI). This article delves into how global inflation affects FDI flows globally and examines the strategies Vietnam may deploy in 2026 to maintain its magnetism for external capital.
Global Inflation Dynamics in 2024–2025
The repercussions of pandemic-era supplychain disruptions, combined with geopolitical tensions such as conflict-driven energy price spikes, gave rise to inflationary aftershocks across continents. In 2024 and into 2025, many economies struggled with cost-push inflation. However, recent data suggest some moderation. Global inflation is gradually easing, with central banks unwinding ultraaccommodative monetary policies and rebalancing interest rates. Still, subtle tremors remain: labor shortages, energy volatility, and supply constraints. These macroeconomic currents ripple out, affecting capital flows, investment appetites, and corporate risk calculus.
As interest rates firm up globally, the cost of borrowing rises. Multinationals and conglomerates that once relied on cheap financing for expansions or new projects now face diminished returns. Capital expenditure — previously justified by low financing costs — becomes more fraught. In this environment, firms adopt caution. They scrutinize every investment proposition more intensely. Regions that promise cost stability and predictable operating environments stand to benefit.
How Global Inflation Affects FDI Decisions
First, inflation elevates operational costs: wages, raw materials, energy, transportation. For manufacturing firms, this compresses profit margins. They may defer new capacity additions or postpone greenfield projects.
Second, currency volatility becomes a formidable concern. A depreciating home currency or volatile exchange-rate swings introduce exchange-rate risk. This can erode projected returns or convert profits into losses once repatriated.
Third, risk aversion rises. Firms facing uncertain global demand, high raw-material cost, and potential supply disruptions may opt to delay investments altogether or retreat from marginal projects. Inflation often precipitates a broader reevaluation of global investment portfolios — with emphasis shifting toward safe harbors rather than highrisk, high-yield ventures.
Vietnam in 2025: FDI Performance Amid Global Headwinds
Despite these headwinds, Vietnam’s FDI performance in 2025 remains robust. Between January and October, the country attracted USD 31.52 billion in registered FDI — a 15.6% increase year-on-year. Realized disbursements reached record highs, signaling not just new investments but deepening confidence from existing investors.
Manufacturing and processing — typically viewed as costsensitive sectors — still account for a lion’s share of FDI. This suggests that even under inflationary global conditions, firms continue to see Vietnam as a viable site for costeffective production and export.
Concurrently, Vietnam’s trade and export performance have remained resilient. In the first half of 2025, GDP grew by 7.52% — the fastest first-half pace in 15 years. Exports and manufacturing output proved robust, sheltering the economy from external turbulence.
Vietnam’s Inflation and Domestic Macroeconomic Conditions
Domestically, inflation in Vietnam has remained relatively modest. Core inflation stayed benign even as headline inflation rose. As of April 2025, headline inflation hovered around 3.1%, having dipped below 3% in late 2024. Meanwhile, consumer price indices and producer price indices have shown manageable increases over the first half of 2025.
This relative macroeconomic stability — compared with many highcost economies — offers a fertile backdrop for foreign investors. Predictable inflation and monetary policy create a more hospitable environment for longterm planning, capital deployment, and cost management.
Structural Advantages That Cushion Vietnam from Global Inflation Shock
Relative to many developed economies, Vietnam continues to benefit from lower labor costs and reasonably lower production overheads. That differential becomes especially salient when global inflation and cost pressures squeeze margins elsewhere.
Vietnam’s export and industrial structure is diversified. Manufacturing and processing remain central, but real estate, services, and other sectors also attract FDI. The breadth of investment channels provides resilience against sector-specific shocks.
Additionally, reinvestment and capital expansions by existing foreign investors have surged. Rather than pulling out, many investors are doubling down — a sign they perceive Vietnam as a stable, long-term base even under global cost pressures.
Vietnam’s Strategic Policy Measures to Sustain FDI in 2026
To sustain and deepen its attractiveness, Vietnam is likely to continue refining its regulatory and institutional environment. Streamlining administrative procedures, reducing bureaucratic friction, and enhancing transparency remain central to maintaining investor confidence. Encouragingly, recent government statements emphasize ease-of-doing-business reforms, particularly aimed at highvalue, knowledgeintensive investments.
Beyond regulatory reforms, Vietnam is expected to push incentives for projects that add value: technology-intensive manufacturing, research and development, and exportoriented production that foresees global demand. Investments in infrastructure — transport networks, logistics corridors, industrial parks — will help dampen cost shocks induced by global inflation.
Focus Shift: From Cheap Labour Manufacturing to HigherValue Investment
Historically, Vietnam’s appeal to foreign investors hinged on its status as a lowcost manufacturing base. But in an era of inflation, cheap labour alone isn’t always enough — stability, predictability, and value-added capabilities matter more.
Thus, Vietnam is repositioning itself. The aim is to attract investors who value long-term growth, regional supplychain integration, and operational stability over short-term arbitrage. Focus is shifting toward highvalue manufacturing, electronics, exportoriented production, and even R&D. This strategic repositioning will likely pay dividends in a world where inflation threatens margins but stability is at a premium.
Currency Risk Management and Financial Stable Framework
Exchangerate stability is crucial for foreign firms operating in Vietnam. A stable dong minimizes repatriation risk and protects investment returns from currency depreciation. Vietnam’s monetary policy and foreignexchange reserve management will be under scrutiny throughout 2026.
To bolster investor confidence, authorities may promote hedging mechanisms or provide incentives for firms that engage in long-term foreign currency financing. Transparent financial regulations and consistent macroeconomic policy will further reinforce Vietnam’s appeal as a predictable investment destination.
Competitive Positioning in Southeast Asia Amid Global Uncertainty
Compared to many regional peers, Vietnam offers a compelling value proposition: relatively low costs, stable inflation, diversified industrial base, and a proinvestment regulatory environment. In a period of global inflation and economic uncertainty, these attributes confer a competitive edge.
Integration within regional supply chains and trade agreements further enhances Vietnam’s attractiveness. As companies re-evaluate global supplychain risks, Vietnam’s strategic location and trade connectivity make it a strong candidate for relocation or diversification.
Sectoral Opportunities Despite Inflationary Pressures
Several sectors remain promising for FDI in 2026, even amid inflation:
- High-tech manufacturing and electronics: Global firms may relocate production to Vietnam to maintain competitiveness in export pricing.
- Exportoriented processing and light manufacturing: These remain costsensitive, and Vietnam’s cost structure still gives an edge.
- Real estate and infrastructure investment: Inflation often spurs demand for real assets; FDI in logistics, industrial parks, and property may increase.
Risks and Challenges to Watch Out For in 2026
Nonetheless, risks remain. If inflation persists globally or domestically, production costs, especially energy, logistics, and raw materials, may rise further — eroding competitiveness. A global demand slowdown could dampen exports, hurting investor returns. Moreover, rising global interest rates could reverse capital flows, making foreign investors more cautious.
What Investors Are Looking For: Stability, Transparency, Long-Term Vision
In this shifting climate, foreign investors are increasingly attracted to jurisdictions that promise stability over volatility, transparency over opacity, and long-term returns over speculative gains. Vietnam’s ability to offer predictable costs, favorable institutional environment, and a diversified manufacturing-export ecosystem will become decisive.
Vietnam’s Strategic Narrative for 2026: Strength Through Resilience
Vietnam’s narrative for 2026 must be one of resilience. Not a lowcost battleground, but a stable platform for sustainable, high-quality FDI. By emphasizing exportoriented manufacturing, value addition, and institutional clarity, Vietnam can position itself as a refuge amid global macroeconomic turbulence.
Projected FDI Outlook for 2026 in Light of Global Inflation Trends
A conservative baseline scenario for 2026 sees FDI inflows growing modestly — stable, but without the breakneck growth seen in prior years. Yet a more optimistic scenario is plausible: a surge in highvalue, reinvestment-driven capital, especially if global inflation stabilizes and supplychain diversification continues. Key variables will be global growth trajectories, interestrate cycles, and supplychain resilience.
Strategic Recommendations for Policymakers
Policymakers should prioritize maintaining inflation control while fostering growth. It’s essential to continue offering incentives to technologyintensive, valueadded sectors. Institutional transparency, regulatory predictability, and streamlined administrative procedures will remain crucial in sustaining investor confidence.
Strategic Recommendations for Potential Investors
For investors considering Vietnam in 2026, prudent measures include hedging against currency risk, carefully structuring supply chains to avoid inflation-induced cost shocks, and focusing on long-term value — manufacturing plus export plus domestic consumption. Diversification across sectors — manufacturing, real estate, infrastructure — may also mitigate risk.
Likelihood of Emerging Trends: Regional SupplyChain Relocation & Nearshoring
As global companies seek to de-risk their supplychains, many will look beyond China. Vietnam stands to benefit as a nearshoring destination that offers cost advantages, stable macroeconomics, and favorable policy frameworks. If Vietnam continues investing in infrastructure and regulatory improvements, it could cement its position as a preferred hub for AsiaPacific supplychain realignment.
The Broader Implication for Vietnam’s Long-Term Economic Development
In the medium to long term, this dynamic can accelerate Vietnam’s transition from a labourintensive, low-cost manufacturing economy to a diversified, value-added, and exportoriented growth engine. By navigating global inflation and external headwinds adeptly, Vietnam may ascend toward middle-income and emergingmarket status, with a robust and resilient economic architecture.
Conclusion
Global inflation undoubtedly presents headwinds to foreign investment worldwide. Rising costs, exchangerate volatility, and macroeconomic uncertainty have made many investors cautious. Yet, Vietnam — with its structural advantages, macroeconomic stability, and forwardlooking policies — remains compelling. With strategic intent and prudent policy, Vietnam is well poised to absorb global shocks, maintain investor confidence, and attract high-quality FDI in 2026. With foresight, stability, and adaptability, Vietnam can turn global turbulence into an opportunity for sustained growth and long-term economic maturation.