US tariff threats a challenge to Vietnam's 'at least 8%' GDP target: economists

Economists at some foreign institutions have predicted Vietnam's 2025 GDP growth at a lower rate than the country's target of "at least 8%", given the tariff threats by the U.S.

"I will urge caution in the 2025 growth target given the uncertain environment. At this moment, I’ll keep to the growth forecast for Vietnam at 7% for 2025," Suan Teck Kin, head of research at UOB, said in a release on Tuesday.

He noted that it is certainly possible to achieve high growth of 8% or even double digit, as Singapore and China had gone through such experience, and Vietnam has very strong momentum in 2024 when it hit above 7% expansion during the year.

But for Vietnam to achieve better than 7%, and to 8% or higher for 2025, it is challenging this year because of the tariff threats by the U.S. could potentially impact one of Vietnam’s growth engines: international trade, he argued.

The National Assembly, Vietnam's legislature, last week raised the 2025 growth target to “at least 8%”, up from the 6.5-7% approved in November last year, and looking to target “double digit” growth from 2026-2030.

Tim Leelahaphan, senior economist, Vietnam and Thailand, Standard Chartered Bank, last Thursday told the media that Vietnam's economic expansion is expected to reach 6.7% this year (7.5% in H1 and 6.1% in H2), driven by continued business expansion this year and beyond, with foreign investment playing a key role.

Leelahaphan made the forecast one day after Vietnam revised its GDP target to "at least 8%". On the same day, Moody's Ratings stated that Vietnam can reach a real GDP growth of 6.5-7% in 2025, the highest tally in the region.

It said challenges for Vietnam include potential shifts in the U.S. trade policies and the possible imposition of restrictions on trade by the United States.

Vietnam is very exposed to international trade, as the country’s exports size is 90% of GDP, the second highest in ASEAN after Singapore (174%) and quite ahead of Malaysia (69%). In addition, Vietnam’s largest export market is the U.S., which accounts for about 30% share of Vietnam’s export, according to UOB data.

Trade was the key driver of Vietnam's strong GDP performance in Vietnam in 2024, as the country’s exports rose 14% in 2024 after shrinking in 2023. The other factor is the strong FDI inflow to Vietnam in 2024, which was a new record of $25.4 billion ($23.2 billion in 2023) for realized FDI. In addition, the semiconductor cycle seems to be falling after the strong run in 2024.

In 2025, Vietnam will be facing challenge of 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 U.S. trade deficit with Vietnam, that will spread across Vietnam through manufacturing and services sectors and impact on spending," Suan Teck Kin of UOB explained.

Slowdown in the semiconductor cycle will impact on Vietnam’s main export items. In addition, the PMI for Vietnam shrunk for two straight months – in December and January, signaling that orders may be slowing and manufacturers may be easing production activities.

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 subject to Trump tariff.

The UOB economist argued that there are some areas that government can do to bolster the chances of achieving high growth of 8% or even double digit in 2026-2030, although he believes that "the pace needs be stable to reduce overheating and wastage".

"One area is to increase substantially public investment to support growth and to cushion declines from export and manufacturing activities. 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 current of 35% to 31% by 2029," he said.

Data from IMF shows that capital formation expenditure is about 30% share of GDP, which is far lower than the 41% share for China.

"The other issue that requires attention is that even if public investment in infrastructure is made, the implementation of it has to carry out to get the benefit of accelerating growth while investment is being spent, and to the benefit of rising productivity in the long term once the projects are completed," Suan Teck Kin added.

The National Assembly recently approved the $8 billion railway project from China to Vietnam, and the North-South highway expansion is nearing completion, as well increased budget for the Ministry of Transport.

There are other infrastructure needs that also require support, particularly related to AI/data, power generation, water, etc, he noted.

Apart from trade and FDI, Vietnam's economic expansion this year is expected to be driven by surging public investment and improved domestic consumption.

At a forum last Friday, Prime Minister Pham Minh Chinh required all ministries, localities, and enterprises to strive for the GDP target of "at least 8%". He noted that the country must increase investment efficiency and improve the disbursement rate of public investment capital.

Vietnam must achieve sustainable, high growth until 2045, to overcome the middle-income trap like what Japan, South Korea, and China have done, he noted.

"Vietnam's GDP has achieved an average growth rate of 6.4% in nearly 40 years since the Doi moi (reform) was introduced in 1986, so the coming period must see acceleration of growth to achieve the strategic goal set until 2045."

Chinh stressed that the economies that have become high-income countries all maintained annual growth rates of around 10% for about 30 years.

Specifically, the Japanese GDP grew 11.5% a year in the period 1951-1973, while it was over 9.6% for South Korea from 1963-1996. Similarly, mainland China's economic expansion was about 10% per year from 1978 to 2011. The tally for Taiwan was 8.9% from 1952-1989, and it was 8.5% for Singapore from 1961-1997.

Speaking at the conference, Deputy Minister of Planning and Investment Tran Quoc Phuong highlighted that relevant authorities must see disbursement of public investment capital as one of the most important political tasks.