Vietnam economic activity improvements fall behind expectations: broker

Statistical indicators for the first two months of 2025 showed that despite improvements compared to the same period last year, Vietnam’s economy activity was yet to meet expectations for the whole year's growth target of 8%, according to Viet Dragon Securities.

PMI remains below 50 points

The Vietnamese manufacturing sector continued to see weak demand in February, which led to further reductions in new orders and production, according to S&P Global.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) was below the 50.0 no-change mark for the third consecutive month in February, despite rising slightly to 49.2 from 48.9 in January.

According to Viet Dragon Securities’ March 2025 macro update report, production activities in the first two months of 2025 showed a decline, as measured by the PMI, but there was a slight recovery based on the increase in the Index of Industrial Production (IIP). Notably, the growth in electricity production did not correspond to the growth of the manufacturing sector.

The report quoted S&P Global as saying that delivery times from suppliers have been extended for the second consecutive month due to a lack of transportation and rising shipping costs.

The Vietnam Automobile Transport Association reported that new regulations from the Road Traffic Safety Law have reduced transportation capacity by 20-30% and increased transportation spending by 20-25%, thus raising logistics costs by 10-11%.

In Jan-Feb, the IIP expanded 7.2%, higher than the 5.7% rise of the same period last year, but still below the government’s target of 9.5%, according to the General Statistics Office (GSO). The electricity production index climbed only 2.3%, much lower than the 12.2% hike a year ago and below the growth target of 10.9% in Q1/2025.

Trade surplus less than 5% of the year's target

One bright spot mentioned in the Viet Dragon Securities report is the growth in retail services, which showed more positive trends than retail goods, while inflation pressure remained under control. However, the issue of trade surplus is noteworthy.

In the first two months of 2025, total import-export turnover grew 12% compared to the same period last year, but exports increased only 8.4%, while imports surged 15.9%, resulting in a trade surplus of just $1.47 billion, or nearly 5% of the whole year's trade surplus target.

The report noted that the U.S. remained Vietnam's market with strongest growth in the two-month period, with imports at U.S. ports expected to continue growing until June 2025. Vietnam aims for a balanced trade to avoid policy risks amid increasing pressure from the U.S.

Public investment disbursement remains slow

According to the report, existing FDI enterprises increased their investment expansion, while the disbursement of public investment remained slow compared to requirements.

In the first two months of 2025, Vietnam attracted nearly $6.9 billion in registered FDI, up 35.5% year-on-year. The additional registered capital was $4.18 billion, six times higher than the same period last year.

Mainland China continued to rank first in terms of newly-registered projects (accounting for 31%) and projects with capital additions (18.8%), while South Korea led in terms of stake acquisittions (27.1%).

FDI disbursement was estimated at $2.95 billion in the two-month period, a 5.4% increase year-on-year.

Meanwhile, according to the GSO, state budget disbursement increased by 21.7% compared to last year’s same period, but reached only 8.5% of the year's plan, indicating slow progress.

To ensure that over 95% of the year plan is disbursed, the Prime Minister has instructed leaders of ministries, sectors, and localities to take direct responsibility for disbursement progress and has established seven task forces to monitor, expedite, and remove obstacles in the process.

Bright spots

A positive signal highlighted in the Viet Dragon Securities report is that the State Bank of Vietnam (SBV) was ready to inject capital into the system and effectively controlled interest rate and exchange rate fluctuations in the early months of the year.

In February 2025, the SBV net withdrew VND41.1 trillion ($1.61 billion) mainly through the maturity of pledges. As of March 4, the interest rate of Treasury bills had decreased by 90 basis points compared to early February 2025, to 3.1% per year. On March 10, the outstanding pledges were valued at about VND80 trillion ($3.14 billion), while the outstanding Treasury bills amounted to only VND1 trillion.

Notably, from March 5, the SBV stopped issuing Treasury bills and offering longer-term pledges (35-day and 91-day), with interest rates at 4%, reflecting the intention to ensure liquidity for the system. Currently, interbank interest rates remain stable, and there is no liquidity shortage.

Regarding interest rates, the report stated that the overnight lending rate for VND fluctuated sharply in February and early March but gradually stabilized at 3.88% per year as of March 7, with the USD and VND interest rate differential maintained at 41 basis points.

The deposit interest rate remained stable in the first two months of the year. From February 25, many commercial banks reduced deposit interest rates at the request of the SBV, with the 12-month average rate for Tier 2 banks (including Eximbank, VIB, HDBank, Nam A Bank, and TPBank) decreasing the most, by 16 basis points compared to the end of 2024.

The DXY index experienced a sharp correction in February, falling 4.5% compared to the beginning of the year to 103.6 on March 10, creating favorable conditions for the SBV to manage exchange rates.

Challenges to achieving growth target

Although statistical indicators for the first two months of 2025 improved compared to the same period last year, they still did not meet expectations for the whole year's 8% GDP growth target, the report stated.

According to Viet Dragon Securities' experts, Q1/2025 economic growth will gain from the low base of Q1/2024. Therefore, improvement in economic activities in March will help Q1 growth reach around 7.3-7.5%, lower than the goal of 7.7%.

“It will be quite challenging to achieve a growth rate of 8-8.2% in the following quarter,” they noted.