Vietnam's economic expansion likely 6.7% in 2025 on increased business activity, FDI: StanChart

Standard Chartered on Friday predicted Vietnam’s economy to grow by 6.7% in 2025, while the government has proposed to raise the target to 8% or more.

The economic expansions in H1 and H2 are projected to be 7.5% and 6.1% year-on-year, respectively, driven by increased business activity and sustained foreign investment, according to the bank's latest macro-economic update released on Friday.

Vietnam’s GDP grew 7.1% in 2024, well above its target of 6.5%, "supported by accommodative monetary policy and strong retail sales".

However, recent data shows a moderation, particularly in the property sector, which continues to struggle despite early signs of a growth recovery, the bank explained.

StanChart's forecast is much lower than the Vietnamese government's target. A proposal by the government presented at a meeting of the National Assembly's Economic Committee on Friday said the 2025 GDP growth should be "8% or more" and the average CPI should be 4.5-5%.

In November, the National Assembly, the country's legislature, set a target of 6.5-7% for 2025. But Prime Minister Pham Minh Chinh later repeatedly stated that the government targets a GDP growth 8%, in order to prepare for an annual growth beyond 10% in 2026-2030. The target adjustment proposal is subject to National Assembly approval.

Tim Leelahaphan, senior economist for Thailand and Vietnam at StanChart, commented: “The government’s focus for stronger economic growth may support low interest rates in the near term. However, we anticipate rate normalization in Q2, with the State Bank of Vietnam (SBV) expected to hike rates by 50 bps in Q2/2025."

"With inflation dynamics, Fed policies, and the performance of the VND playing a key role, the SBV’s monetary policy decisions will be crucial in maintaining economic stability and growth in 2025. Ensuring sustainable growth will require diversifying the economy and increasing preparedness for natural disasters," he added.

Vietnam's inflation rose to 3.6% year-on-year in January 2025 (from 2.9%), marking the sixth straight month of below 4%. Increases in the prices of transportation and food during the Lunar New Year holiday were the main factors that drove the pace of inflation in January, according to the General Statistics Office.

StanChart remarked that inflationary pressures could intensify in 2025, driven by rising costs in health care, housing, construction materials, and food. "The central bank may face challenges if inflation picks up in Q2/2025, which could complicate economic recovery efforts."

Other key January macro indicators showed a moderation in domestic and external data; however, electronics exports continued to improve.

Vietnam’s large trade surplus with the U.S. could attract increased scrutiny under the new U.S. administration. While the external position remains solid, certain risks persist: the monthly trade surplus has narrowed recently; proposed rule changes may disqualify minimally processed imported goods from carrying the “Made in Vietnam” label, affecting supply chains; the relocation of global production to Vietnam may also raise concerns about overcapacity and pricing pressures, it argued.

The Vietnamese dong remains a managed currency, limiting short-term FX volatility. Despite a historical fiscal deficit averaging about 2% of GDP in the past two decades, Vietnam’s economic fundamentals remain strong. The central bank may need to accumulate FX reserves to prevent excessive VND appreciation, the bank noted.

Tourism is expected to be a key driver of growth, supported by increased international arrivals and the return of Chinese tourists. Meanwhile, credit growth is forecast at 16% in 2025, loans grew 15.1% in 2024, though lending activity remains cautious, it added.

"Lower U.S. interest rates may help reduce capital outflows, but Vietnam’s low import cover remains a challenge. Additionally, commodity prices – especially oil – remain a risk factor."

In the mid-January edition of its “Global Economic Prospects” report, the World Bank said that Vietnam’s GDP growth can reach 6.6% in 2025. The figure is 0.6 percentage points higher than the figure in the June 2024 edition.

Singaporean bank UOB on January 9 raised its forecast for Vietnam’s GDP growth in 2025 to 7% from 6.6% last October. The prediction took into account the strong momentum carried over from 2024 as well as risks and potential downside from the new US administration's further trade frictions.

Domestic consumption and public investment will be the primary drivers of Vietnam's GDP growth this year, according to Le Anh Tuan, head of investment at Dragon Capital Group.