Vietnam set to continue growing fastest in ASEAN-6 in 2025: HSBC

Vietnam is forecast to deliver the highest GDP growth among the six biggest Southeast Asian economies this year and next year thanks to rising foreign investment, robust exports, and improving domestic demand, says an HSBC economist.

Delivering the keynote presentation at the HSBC market outlook seminar in Hanoi on Wednesday, Frederic Neumann, chief Asia economist at HSBC, said Vietnam is projected to grow 7% in 2024 and 6.5% in 2025, faring better than the Philippines, the second best performer, with respective 5.8% and 6.4%.

In the regular “Vietnam at a glance” report released last week, HSBC economists said from a challenging 2023 and Q1/2024, Vietnam was clearly back as ASEAN’s growth star. Its Q3/2024 growth came in at 7.4% year-on-year, beating HSBC and consensus expectations at 6.2% and 6.1%, respectively.

Vietnam’s export growth has improved markedly since the start of this year. However, the country’s domestic demand remains weak due to a decline in exports in 2023 that deprived earnings of manufacturing companies; high inflation which is the second highest in ASEAN; and corrections in the local real estate market.

The economist pointed out that the inflation shock in Vietnam is waning. “We're starting to see the headwinds for domestic demand decline. And so we think that actually next year, growth is slightly shifting from exports back to domestic demand, which gives us a more stable footing for the economy.”

Looking ahead, to move up in the value chain, Vietnam needs to increase investment in not just hard but also soft infrastructure, Neumann suggested.

He added that infrastructure spending needs to outpace GDP growth. “We're growing at 7%, which means that your infrastructure needs to grow at 7% just to keep still. And if you want to jump ahead of this, well the infrastructure needs to expand by 10% and this requires enormous improvements that you see here.”

Vietnam’s FDI competitiveness

In terms of foreign direct investment (FDI) attraction, Vietnam has maintained its competitiveness and “is still way more competitive than other [Southeast Asian] countries,” noted Neumann.

Vietnam keeps attracting record amounts of investment, not just from the Western world, but from China as well, said Neumann. Data showed that in 2015, China’s FDI made up 8% of all foreign direct investment in Vietnam. In 2023, that percentage increased to 35%.

Neumann attributed that change to trade frictions between China and the U.S. and increasingly competitive wage costs in Vietnam. The average wage cost in Vietnam is less than half that in mainland China and lower than that in Malaysia, Thailand, and Indonesia, according to HSBC data.

Tim Evans, CEO of HSBC Vietnam, said “the worst is behind us” and Vietnam remains a “competitive economic story.” HSBC commits to continuing to invest in the country, he added.