In fact, it is reasonable for this expectation. The manufacturing sector has emerged strongly from last year’s woes. This has supported export growth at a2-digit pace, with broadened growth in other sectors, including agriculture products. Given the strong recovery momentum in 3Q24, HSBC Global Research has raised its GDP forecast for 2024 to 7.0% (from 6.5%), while maintaining GDP forecast for 2025 at 6.5%.

On the inflation target, price developments are turning more favourable in 2H24. Pressure on some agricultural products is expected to lessen as the weather transition from El Niño to La Niña brings more favourable harvesting conditions to Southeast Asia. Taking all these into consideration, HSBC Global Research maintains inflation forecasts at 3.6% in 2024, well below the State Bank of Vietnam’s target ceiling of 4.5%. For 2025, we keep our inflation forecast at 3.0%.

However, there are risks that should be watched closely next year. In addition to global energy prices, Vietnam is also vulnerable to food shocks. For instance, pork prices have been elevated as pork supply has been affected by African Swine Fever.

Besides, whether end-demand for goods improves further will be key in determining the strength of Vietnam’s recovery, as Western markets make up close to half of Vietnam’s exports. The trajectory and pace of consumer spending in the West will therefore need to be closely watched. Clearly, president-elect Donald Trump in charge and a Republican-controlled Congress will affect the outlook for global economy and trade in the upcoming time. It’s still early to comment on the Trump administration, however, no matter how US policy could have important consequences for ASEAN, including Vietnam, in many ways.

In particular, the Republicans proposed to implement a minimum 60% import tariff on China and 10-20% universal import tariff on the rest of the world. Since 2018 when US tariff increases on China started, Vietnam has gained a substantial share in the US market. Footwear exports have jumped from 20% to over 30% of US import demand. More importantly, Vietnam exports over 40% of its garments and 33% of its footwear to the US. While Europe is the second largest importer of these products, its market would not be able to fully absorb the US share in the short term.

As a result, exporters may have trouble finding alternative markets to substitute production away from the US if tariffs become an issue. Although it might be difficult to switch to alternative markets in the short term, Vietnam can perhaps hedge against potential tariff risks from the US over the medium-to-long term through multiple free trade agreements. Currently, Vietnam has signed FTAs with major trading partners, including China, Japan, Korea, and the EU.

In addition to tariffs, currency concerns may re-emerge as an issue for policymakers. Vietnam was named as a currency manipulator by the US Treasury Department in December 2020 and has been removed from the list in April 2021. Vietnam is still on the most recent US Treasury monitoring list. While being on the list has few direct short-term implications, it is likely that the US authorities will closely monitor Vietnam’s trade data. Beside the impact from Fed policy, the USD movement in the international market is also worth considering for the upcoming FX trend. Meanwhile, given the uneven recovery and next year’s high growth target, HSBC Global Research expects the SBV to maintain an accommodative monetary policy and keep its policy rate at 4.5% until end-2025.