Better-than-expected trade

This is the second quarter that Vietnam’s growth has exceeded 8% year-on-year, easily beating market expectations.

When ASEAN peers’ exports to the US have seen notable moderation after frontloading activities have faded, Vietnam’s trade performance remains strong at double-digit growth.

What is more encouraging is the size of trade surplus in Q3, doubling that in H1, thanks to a widening surplus with trading partners other than the U.S. Part of the story is thanks to the elevated AI-driven tech demand, benefitting tech-exposed economies.

Don’t forget the domestic side

But it’s not only about trade: domestic resilience is equally, if not more, important. Despite challenges in trade of goods, the services sector provides some anchor to growth. Retail sales have seen some meaningful improvements, while tourism continues to flourish as Vietnam leads ASEAN in tourism recovery.

In addition, the government’s push for mega-infrastructure projects has boosted construction activities. There is potential to grow more, if the public investment disbursement can accelerate, which accounts for only 50% of the annual target as of Q3.

Updated forecasts

Given the big upside surprise in Q3, we are now raising our yearly GDP growth forecast to 7.9% for 2025 (from 6.6%), and 6.7% for 2026 (from 5.8%). But we also need to be mindful of the biggest downside risk to growth: trade volatility. We are also raising our inflation forecast slightly, to 3.3% (from 3.2%) for 2025 and 3.5% (from 3.2%) for 2026.

Table 1. Summary of key recent economic indicators

Table 2. Vietnam’s GDP profile

Keep striding

After upside surprises in ASEAN economies’ growth in Q2, strong momentum has continued. This is particularly evident for trade-dependent countries like Singapore and Malaysia, but Vietnam’s magnitude of upside surprise is in a league of its own.

Vietnam delivered a significant upside surprise in its Q3/2025 growth, as high as 8.2% year-on-year, sustaining the strong momentum in Q2/2025. This outperformance easily beat market expectations of 7.2% year-on-year, placing Vietnam as the fastest-growing economy in ASEAN, once again.

Chart 1. Monthly trade surplus significantly improves in Q3/2025

Chart 2. The boom in electronics exports drives Vietnam’s export outperformance

What surprises us the most is the resilience of the externally-oriented industries, and this reflects in manufacturing and trade. Despite an uncertain trade environment, industrial production (IP) grew 10% year-on-year in Q3.

Not surprisingly, trade continues to boom with exports and imports both hitting close to 20% year-on-year growth. But what is more encouraging is the trade surplus Vietnam has retained, which has more than doubled to $3 billion in Q3, from H1/2025. This indicates Vietnam has widened its trade surplus with trading partners other than the U.S., although the latter remains its biggest exporting destination with one-third of the total share.

A closer look at the data reveals the main driver of trade: the electronics products. Chart 2 clearly outlines the strong momentum in both consumer electronics and electronics components. This boosts Vietnam’s exports to the US significantly, with exports still hitting almost 30% year-on-year in Q3.

While frontloading trade activities have peaked across ASEAN, Vietnam’s export growth to the U.S. market remains elevated, reflecting another trend we have been witnessing across Asia: that tech-exposed economies are benefiting from high AI-driven tech demand, providing a hard backbone to their trade.

Chart 3. Retail sales continue to see meaningful improvements

Chart 4. Vietnam leads ASEAN in tourism recovery

In addition to trade resilience, the services sector continues to see strong growth. Consumer-oriented retail sales are seeing some meaningful improvements, finally. Retail sales jumped 12% year-on-year in Q3, narrowing the gap with its pre-pandemic trend to only 3%, from 10% at the start of 2025.

Meanwhile, tourism-related sectors, including transport and accommodation, are also seeing an ongoing boom. In last month’s commentary, we outlined how Vietnam has now turned into the new darling for Chinese tourists, despite not having a visa-free scheme.

Indeed, Vietnam is leading ASEAN in tourism recovery. After welcoming 15 million tourists as of Q3, Vietnam is seeing the return of tourists equivalent to 120% of 2019’s level. While Vietnam does not rely on tourism as much as peers such as Thailand, its rising competitiveness in tourism nonetheless partially shields it against the headwinds in trade of goods.

Apart from the supply-side of the economy, it is equally important to assess the demand-side. Real consumption expanded over 8% year-on-year while real investment grew close to 10% year-on-year in Q3. In particular, the focus on accelerating mega infrastructure projects has been a priority. That said, there is still room to expand further, as the disbursement rate of public investment is only 50% of the annual target as of Q3.

Chart 5. Investment has been taking the lead in supporting growth

Chart 6. The composition of Vietnam’s new FDI has changed

In addition to public investment, FDI remains a key driver in fuelling Vietnam’s growth. Since the “liberation day” in April, there have been increasing concerns on the sustainability of Vietnam’s FDI inflows. Total FDI rose 15% year-on-year as of Q3 but new registered FDI fell 9% year-on-year.

Interestingly, the composition of Vietnam’s FDI portfolio has shifted this year. In 2024, Singapore, South Korea and mainland China were the top-three investors. However, Singapore and mainland China now account for around a quarter of new FDI, respectively, while South Korea’s share dwindled, with the U.S. filling the gap.

In other words, despite trade uncertainties, the world’s two largest economies continue to pour their investments into Vietnam. After all, now that all ASEAN EM are back to the same starting line, facing tariffs of “19-20%”, existing beneficiaries of the trade tensions will continue to benefit, for example, Malaysia and Vietnam.

Chart 7. Inflation has remained broadly benign, well below the 5% inflation ceiling

Chart 8. Credit growth has seen a spike since the start of 2025

Outside of growth, inflation remains largely in check. Despite a modest pick-up in momentum of 0.4% month-on-month, headline inflation rose 3.4% year-on-year in September, in line with market expectations (HSBC: 3.4%; BBG: 3.4%). The main drivers were rising food prices, due to increasing demand during the National Day holidays, and increasing petrol prices. Core inflation remains stable at 3.2% year-on-year, well below the SBV’s “4.5-5%” inflation ceiling.

With inflation taking a backseat, the State Bank of Vietnam (SBV) aims at higher credit growth to support growth. Credit growth has seen a spike to 20% year-on-year at the end of August, on track with the SBV’s expectation of annual expansion of 19-20%, higher than its original target of 16%.

All in all, Vietnam’s growth outperformance makes it stand out in ASEAN, again. Given the upside surprise in Q3 outturn, we are now raising our GDP growth forecast to 7.9% (prev: 6.6%) for 2025 and 6.7% (prev: 5.8%) for 2026.

But the biggest downside risk to growth remains trade uncertainties. The government recently maintained its 2025 growth target at 8% and also announced its 2026 growth target at 10%. Meanwhile, we also raise our inflation forecasts slightly to 3.3% for 2025 (prev: 3.2%) and 3.5% for 2026 (prev: 3.2%).

Table 3. HSBC new forecasts on Vietnam’s macro indicators