Vietnam Faces Demographic Crisis as Birth Rate Plummets
Vietnam has reached a troubling milestone as its birth rate fell to a historic low in 2024, with the total fertility rate recorded at just 1.91 children per woman. This decline marks the third consecutive year that the figure has remained below the replacement level of 2.1, a concerning trend juxtaposed against the backdrop of a robust economic landscape.
The nation, home to approximately 100 million people, is experiencing significant demographic shifts. According to the Vietnam News Agency, the country's population could start to decline by mid-century if the current trend continues. Major urban areas such as Ho Chi Minh City, the southern economic powerhouse, are already witnessing drastic reductions in fertility rates, dropping from 1.39 children per woman in 2022 to an alarming 1.32 in 2023.
In response to this demographic challenge, local authorities in Ho Chi Minh City have initiated programs aimed at incentivizing higher birth rates. These include financial grants for women under 35 who have two children, as well as small stipends to assist low-income families with prenatal and neonatal care. The city's People's Council is optimistic about boosting the fertility rate to 1.6 by the year 2030.
Despite these efforts, experts have sounded the alarm over what has been termed a "demographic time bomb." A recent report by Ipsos, a market research firm, underscored the potential economic implications of the population crisis, suggesting it poses both challenges and opportunities for businesses operating in the region.
As Western investors increasingly look to diversify their interests away from China, Vietnam has emerged as a favored destination. The country reported a substantial GDP growth rate of 7% last year. Although foreign direct investment saw a slight decline of 3% year-on-year, totaling $38 billion, analysts suggest that Vietnam remains an attractive option for capital, especially amid rising tensions between the US and China under former President Donald Trump.
Industry experts emphasize the importance of continued economic reforms in Vietnam to maintain its appeal to investors. Key factors influencing investment decisions include the country's strong economic performance, its involvement in international trade agreements, and its strategic role in regional supply chains.
The demographic dividend that once fueled Vietnam's rapid growth is fading. In 1986, when the country shifted to a market-oriented economy, nearly 40% of the population was under the age of 16. Today, children constitute only about one-fifth of the population, and projections indicate that the proportion of working-age individuals (ages 15-64) may decrease to 63% by 2050, down from 69% in 2020.
Vietnam is on the brink of becoming a "super-aged" society, with predictions showing that by 2034, individuals aged 65 and older will represent 14% of the population. This figure is expected to exceed 20% by 2049. Experts warn that a shrinking workforce could negatively impact productivity and economic growth, while an aging population will place increased strain on public resources as the number of tax-paying workers declines.
According to a World Bank analysis, Vietnam's pension expenses could escalate from the current 2% of GDP to 3.6% by 2050 and as high as 5.6% by 2080. Under this scenario, the nation's pension surpluses could be exhausted by the 2040s, raising concerns about future fiscal sustainability.
While Vietnam's demographic challenges may not be as severe as those faced by some neighboring countries, the clock is ticking for the nation to bolster its economic standing before it transitions to an aged society. Comparatively, Thailand reached this status in 2020, with a GDP per capita of around $7,000, while Singapore was classified as aging with a GDP per capita of $79,000 in 2021. In contrast, Vietnam's GDP per capita was only $4,300 in 2023.
Historically, Vietnam has enforced a complex two-child policy, which has included penalties for state employees and Communist Party members who exceed this limit. Discussions around modifying this policy have taken place since the mid-2010s, and the government is currently drafting a new population law aimed at encouraging childbirth, which may include eliminating penalties for families with more than two children.
Business leaders suggest that immediate action is necessary in areas such as retirement planning, productivity enhancement, and healthcare improvements to better prepare for an aging society. While European investors have not indicated significant concerns over Vietnam's demographic issues, there is a consensus that proactive measures are essential to mitigate potential impacts on the economy.
