The reclassification reflects Vietnam’s export-led rise and the Philippines’ broad-based expansion, but economists warn both now face the tougher task of escaping the middle-income trap.
Vietnam and the Philippines have been reclassified as upper-middle-income countries by the World Bank, placing them alongside Southeast Asian peers such as Malaysia, Thailand and Indonesia. The World Bank uses Gross National Income (GNI, income earned by residents) per capita from the previous year to set income bands, and said the upper-middle-income range for 2025 was $4,636 to $14,375. Vietnam posted GNI per capita of $4,970 in 2025, while the Philippines reported $4,850. The World Bank attributed Vietnam’s move to an export boom and the Philippines’ upgrade to broad-based economic growth across major industries. Vietnam’s economy expanded 8% last year, the fastest in Southeast Asia, helped by trade diversions from the U.S.-China trade war, a surge in foreign direct investment (FDI, cross-border investment in businesses), and stronger exports to the U.S., its largest export market. Hanoi is targeting average GDP growth of 10% through the end of the decade and wants high-income status by 2045, backed by economic reforms and infrastructure spending including a $67 billion high speed railway between Hanoi and Ho Chi Minh city. The Philippines grew 4.4% last year after being hit by super typhoon Ragasa and a strong El Nino season that caused around $24 million in losses nationwide. Arsenio Balisacan said on July 2 that the country had continued to pursue inclusive growth and stay on track with its development agenda despite global and domestic shocks. Growth is still expected this year. The ASEAN+3 Macroeconomic Research Office (regional policy research body) projects Vietnam will grow 7.4% and the Philippines 5.3%, above its 4.6% forecast for ASEAN overall. It estimated Singapore at 3.4% and Thailand at 1.7%. Economists say the upgrade also marks entry into a more difficult phase. The middle-income trap describes economies that lose their cheap-labor edge without developing enough innovation and high-value industries to compete with richer countries. Ruben Carlo Asuncion said moving up the World Bank’s classification ladder also means countries are seen as more self-sufficient, including fiscally, and may lose access to some development funding. Malaysia has remained upper-middle-income for 37 years, Thailand for 15 years and Indonesia for six, with all three generally recording long-term growth rates below 5% since entering the group. Khuong Minh Vu said both countries will need to shift from factor-driven growth to productivity, innovation and value creation to reach high-income status. He said Vietnam in particular must harness the AI revolution while using an unprecedented wave of institutional reforms to sustain rapid growth. Vietnam reported on July 3 that second-quarter growth reached 8.4%, including 10.5% growth in industry and construction, though that still leaves it needing faster expansion to meet Hanoi’s full-year 10% target. The Philippines is due to release second-quarter GDP in early August, with economists at the University of Asia and the Pacific forecasting 2.6% growth for the previous quarter.