Source: UOB

On February 19, the National Assembly raised the 2025 growth target to at least 8 per cent while looking to target double-digit growth from 2026-2030, while the official forecast remains at 6.5-7 per cent.

"It is certainly possible to achieve high growth of 8 per cent or even double-digit, as Singapore and China have gone through such experience, and Vietnam has strong momentum from 2024 when it hit above 7 per cent," Suan Teck Kin, executive director in global economics and markets research at the United Overseas Bank (UOB).

For Vietnam to achieve better than 7 per cent, and 8 per cent or higher in 2025, it will be challenging because tariff threats made by the US could potentially impact one of Vietnam’s growth engines: international trade, he added.

Vietnam is very exposed to international trade, as the export size is 90 per cent of GDP, the second highest in ASEAN after Singapore (174 per cent), and some way ahead of Malaysia (69 per cent). In addition, Vietnam’s largest export market is the US, which accounts for about a 30 per cent share.

The strong GDP performance in Vietnam in 2024 was due to trade, as total exports rose by 14 per cent after shrinking in 2023. The other factor was the strong foreign direct investment (FDI) inflow to Vietnam in 2024, which reached a record $25.4 billion ($2 billion higher than in 2023) for realised FDI. In addition, the semiconductor cycle seems to be falling after the strong run in 2024.

The UOB expert pointed out some challenges for Vietnam amid Trump tariff threats. Indirectly, if export demand comes down due to slower activities, that will impact Vietnam’s export performance and GDP growth. If Trump hits Vietnam with direct tariffs because of the US trade deficit with Vietnam, that will spread through the manufacturing and services sectors and impact spending.

"The slowdown in the semiconductor cycle will impact Vietnam’s main export items. In addition, the Purchasing Managers' Index for Vietnam shrunk for two straight months in December and January, signalling that orders may be slowing and manufacturers may be easing production activities," Kin emphasised.

"FDI inflows may also be subject to tariff policy as companies may reconsider diverting some of their investments to other locations that may be less likely to be hit with Trump tariffs," he added. "As such, I urge caution for the 2025 growth target given the uncertain environment. At this moment, I’ll keep the growth forecast for Vietnam at 7 per cent for 2025."

Kin raised some areas that the government could do to bolster the chances of achieving high growth of 8 per cent or even double-digits in 2026-2030, "although I want the pace to be stable to reduce overheating and wastage."

One area is to increase substantial public investment to support growth and cushion declines from export and manufacturing activities, the UOB expert raised. Another is infrastructure build-up that Vietnam is currently lacking. Data from the International Monetary Fund shows that capital formation expenditure is about 30 per cent of GDP, which is far lower than the 41 per cent share for China.

In addition, Vietnam’s fiscal stance looks to be overly conservative at this early stage of development, as the government is targeting to lower its public debt to GDP from the current 35 per cent to 31 per cent by 2029. "To increase public investment, it may be necessary to increase leverage and debt," Kin proposed.

He also claimed the other issue that even if public investment in infrastructure is made, it must carry the benefit of accelerating growth while investment is being spent, with rising productivity in the long term once the projects are completed.

It is encouraging to learn that the National Assembly has approved the $8 billion railway project from China to Vietnam, and the North-South highway expansion is nearing complete, as well an increased budget for the transport ministry. "Other infrastructure needs also require support, particularly related to AI/data, power generation, and water," he emphasised.