Vietnam’s economic growth slowed to 7.83% year-on-year in Q1/2026 from 8.46% in Q4/2025, but still beat both our 7.0% forecast and Bloomberg’s 7.60% consensus.

Growth was supported by manufacturing, construction and services, underpinned by strong export demand (19.1% year-on-year) and realized FDI inflows (up 9.1% year-on-year to $5.41 billion), as firms continued diversifying supply chains amid changing global trade rules.

Recent data, though, point to a mixed near-term outlook as higher energy costs weigh. Manufacturing improved in May, with the PMI rising to 52.8 from 50.5 in April and 49.8 a year earlier, while the output index surged to 55.6. But inflation rose further to 5.6% in May (April: 5.5%; March: 4.7%), reaching a six-year high.

Manufacturing output growth slowed to 9% year-on-year in May from 10% in April, averaging 9.5% in Q2/2026 versus 11% in Q1/2026. Exports eased to 18% year-on-year from 21% in April, while imports rose 33.8% from 32.5%. This pushed the January-May trade balance to a $12.7 billion deficit, vs a $5 billion surplus in 2025, the widest gap in nearly three decades.

We expect pressure on balance of payments to continue. Major infrastructure and transport projects should boost demand for imported machinery, while higher oil prices will raise energy costs. Our simulations show that if crude averages $100/bbl for 6-12 months, Vietnam’s energy import bill could rise by about 40%, or $5.2bn, in 2026, while the current account surplus could narrow by around 20%, or $6.5bn, from $33bn in 2025.

Outlook: Vietnam’s medium-term ambitions remain highly aspirational. On April 24, the National Assembly set a 2026-2030 agenda targeting at least 10% average annual GDP growth. By 2030, the authorities aim to reach upper-middle income status, build a modern industrial base, rank among the world’s 30 largest economies, and lift GDP per capita to $8,500. By comparison, the World Bank forecasts 6.8% growth in 2026 and 4.2% inflation, citing the impact of the Middle East conflict on trade, fuel prices, and businesses.

In our view, downside risks from energy prices and possible shifts in U.S. tariff policy remain significant, though external demand has held up so far, supported in part by the global AI build-out. On balance, we continue to expect growth to moderate to 7% in 2026. The most challenging period is likely in Q2/2026–Q3/2026, with growth averaging about 6.7%.

Central bank holds firm as it watches inflation and FX pressures

A key concern for the State Bank of Vietnam (SBV) is inflation, which averaged 4.3% year-on-year in the first five months, close to its 4.5% target, and the SBV expects it could rise to 5.5% this year.

As the SBV monitors downside pressure on the VND, its preference is likely to keep policy rates steady. Separately, the central bank has urged banks to lower lending rates to support borrowers, while fiscal measures are deployed, including extending the zero-rate tax on petrol and selected fuel products until end-Jun.

Even so, some local banks have raised deposit rates amid competition for liquidity as credit demand rises. Outstanding loans reached more than VND19.4 quadrillion as of 28 Apr, up 18.26% year-on-year, while total liquidity in the year to date grew a slower 7.7% year-on-year.

Signs of currency stabilization

The VND has stabilized in recent weeks, trading in a 26,291-26,372 range in April-May, well within the SBV’s ±5% band around its daily reference rate. The April intervention, via 180-day cancellable forwards at 26,850/USD, appears to have set an effective ceiling, anchoring expectations and curbing speculation. The extension of the U.S.-Iran ceasefire in late May has also supported the external backdrop.

More broadly, the stabilization in the U.S.-China trade framework after the Trump-Xi summit in mid‑May is constructive for Vietnam’s exports. Lower bilateral tensions reduce the risk of secondary tariff spillovers, reinforcing Vietnam’s role as a key beneficiary of global supply chain shifts and supporting its medium- to long-term FDI story. The SBV also noted that 80% of VND deposits are short term.

That said, in the near term (Q3/2026), the VND is likely to stay on the defensive alongside regional peers amid lingering geopolitical uncertainty. Over the medium term, we maintain a broadly stable view, supported by robust growth, sustained FDI inflows, and a steady monetary policy stance, with the SBV expected to keep its policy rate unchanged at 4.5% through 2026. Vietnam’s potential upgrade to Emerging Market status in September 2026 could also provide a structural boost to portfolio inflows.

On balance, we retain a gradual depreciation bias for USD/VND, with updated forecasts of 26,500 in Q3/2026, 26,400 in Q4/2026, 26,300 in Q1/2027, and 26,100 in Q2/2027.

Gold

Near term consolidation around $4,500/oz is both important and necessary

In late Mar, after the Iran War intensified leading to the shutting down of Strait of Hormuz to shipping, Brent crude oil prices spiked above $100/bbl and we promptly lowered our gold forecast to $4,400/oz in Q2/2026 and $4,600/oz in Q3/2026, on the worry of near-term price weakness from higher inflation expectations.

That near term cautious view on gold turned out to be prescient as gold now consolidates around the $4,500/oz level as U.S. Treasuries yield trade higher on increasing worries of inflation from higher crude oil prices.

Amidst this consolidation, both trading and speculative activity has cooled down, as seen in the drop in gold inventory held on COMEX as well as the drop in trading volume for the benchmark GLD ETF. There are some additional near-term headwinds against gold. These include central bank sales from Russia and Turkey as well as India’s efforts to scale back on its gold purchases to limit INR weakness.

As such, this near-term consolidation around $4,500/oz is very important and necessary for gold to find a stable footing ahead of long term positive safe haven drivers reasserting in the months ahead.

Overall, while we stay cautious near term, we reiterate the long-term positive view. Our updated gold forecast is $4,600/oz in Q3/2026, 4,800/oz in Q4/2026, $5,000/oz in Q1/2027 and $5,200/ oz in Q2/2027.

Brent Crude Oil

Hormuz has to reopen soon for Brent to normalize below $90/bbl

Brent Crude Oil is now at a critical juncture after three months of the Iran War. The shutting down of the Strait of Hormuz to shipping has significantly constricted global energy supply. OPEC’s overall crude oil production has dropped by 1/3 to about 20.5 mio bpd.

The world, especially Asia, has adjusted to seek out alternative crude oil supply from the Americas and Africa. In addition, China has done its part by reducing oil imports significantly and drawing down on its massive domestic reserves instead.

Saudi Arabia has also successfully shipped oil from its East-West pipeline out via the Red Sea port of Yanbu. About 5 mio bpd of crude oil is now shipped via this alternative route, going a long way to alleviate the crunch from the 20 mio bpd lost from Hormuz blockage.

Most importantly, a large part of the remaining stop gap was achieved from drawing down of existing global crude oil inventories. The International Energy Agency (IEA) estimates that 129 mio bbl of “global observed inventory” was drawn down in March and another 117 mb in April. This amounts to an estimated 4 mb per day across March and April and is likely to have intensified across May.

With the peace deal between U.S.-Iran remaining elusive and Strait of Hormuz still blocked to shipping, our updated quarterly Brent crude oil forecast retains a cautious outlook for $100/bbl in H2/2026 and $90/bbl in H1/2027.

Should there be a credible peace deal leading to then gradual reopening of Hormuz, then Brent may well pull back below $90/bbl. On the other hand, resumption of hostilities and conflict between U.S. and Iran may well push Brent back up above $100/bbl and towards $120/bbl.