Vietnamese dong likely to weaken further: UOB

The Vietnamese dong (VND) is likely to weaken further to 25,800 per U.S. dollar in Q2/2025 and 26,000 in Q3, according to Singaporean bank UOB's updated forecasts released on Wednesday.

The figures for Q4/2025 and Q1/2026 are 25,800 and 25,600, respectively.

The VND weakened to a record low of about 25,600/USD in early March after the State Bank of Vietnam (SBV), the country's central bank, raised its USD sale prices to banks to 25,698/USD from 25,450 /USD, the first increase since last October.

"From here, the path of resistance is still biased towards further VND weakness due to China growth and tariff uncertainties. There is a risk of US imposing tariffs on Vietnam, owning to the latter’s sizable and growing trade surplus with the U.S.," UOB noted.

Potential tailwinds to offset VND depreciation pressures include strong domestic growth outlook and the SBV’s pledge to ensure a “stable exchange rate,” the bank added.

The State Bank of Vietnam set the daily reference exchange rate for the U.S. dollar at 24,758 VND/USD on Thursday, unchanged from the previous day.

With the current trading band of +/- 5%, the ceiling rate applicable for commercial banks during the day is 26,996 VND/USD and the floor rate 23,520 VND/USD.

At 3:15 p.m. Thursday, Vietcombank listed the buying rate at 25,320 VND/USD and the selling rate 25,680 VND/USD, down from the 25,280 and 25,640 in the previous day.

The figures for BIDV on Thursday are 25,320 VND/USD and 25,680 VND/USD, unchanged from the previous day.

Central bank to stay steady for now

UOB said with economic growth staying robust in 2024 and into 2025 and the U.S. Fed poised to hold steady, there is less urgency for the central bank to hurry into any policy easing. At the same time, inflation ticked higher to 3.6% in 2024 from 3.26% in 2023, though still below the 4.5% target.

However, with the prospects of further trade tensions globally under Trump 2.0 and the accompanying U.S. dollar strength an emerging concern, SBV is expected to stay alert to downside pressures on the VND. As such, the best course of action currently is for the key refinancing rate to stay at 4.5%, the bank argued.

Positive momentum to continue but with risks ahead

Vietnam’s real GDP in Q4/2024 surged 7.55% year-on-year, extending the momentum from a revised 7.43% in Q3/2024, and far ahead of market expectations.

With the surprisingly strong performances in three straight quarters, the country's economy expanded 7.09% in 2024 from 5.1% in 2023, beating handily consensus call of 6.7% and official target of 6.5%.

Vietnam’s National Assembly on February 19 raised the country’s 2025 growth target to “at least 8%” and looked to target “double digit” growth from 2026-2030.

While 8% or higher growth rate is possible, exports and manufacturing will not be sufficient to drive such outperformance. Additional capital expenditure, particularly from public investment, will be needed to stretch further as well as to buffer against any potential downturns to trade, UOB remarked.

Vietnam’s capital investment ratio has stayed around 30% of GDP at least over the past decade. In contrast, China’s gross capital formation has stayed consistently above 40% in the same period.

This suggests that Vietnam has been underinvesting relative to its large neighbor and there is certainly a case for higher public investment, particular the government is aiming for double-digit growth rate ahead.

"Taking into account the above factors, we stay cautiously positive for Vietnam’s outlook. We maintain our call for Vietnam’s full year growth forecast at 7% in 2025, assuming Q1/2025 GDP growth of 7.1%. For 2026, we anticipate the expansion pace to step up to 7.4%, benefitting from the government’s efficiency drive," the bank added.

S&P Global in a note released on February 25 predicted that Vietnam’s economy can reach 6-7% annually for the next decade and beyond. It attributed the country's strong growth to its significant FDI attraction and an attractive labor force.

Tim Leelahaphan, senior economist, Vietnam and Thailand, Standard Chartered Bank, on February 20 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.

The boom in exports in 2024 resulted in its strongest economic performance since 2022. Vietnam’s economy highly open nature (exports value was about 90% of GDP in 2024, the second highest in ASEAN after Singapore’s 174% and ahead of the third-placed Malaysia’s 69%).

This high degree of openness means that Vietnam is vulnerable to disruptions and frictions to international trade especially with US President Trump’s focus on trade imbalances, according to UOB.

It should be noted that US trade deficit with Vietnam has nearly quadrupled from 2016, to $124 billion in 2024. Overall, US trade deficit with ASEAN has nearly tripled to $228 billion in the same period as global trade flows and supply chain shifts accelerated in response to trade restrictions implemented in Trump 1.0 era, the bank added.