Challenges to Vietnam's Economic Growth

Strong trade, a recovery in export manufacturing, and robust foreign direct investment (FDI) fueled economic growth in 2024, he said. However, the global economic environment, marked by recently announced tariffs by the United States and geopolitical tensions, could notably impact export-driven manufacturing. Global uncertainties, including tariff escalations, retaliatory measures, the ongoing Russia-Ukraine conflict and continued instability in the Middle East, may hinder economic growth. Additionally, a slowdown in the U.S. and China, Vietnam’s major trading partners, may further affect economic prospects.

According to ADB’s Vietnam Economic Development Outlook (calculated before the official announcement of U.S. tariff measures), global trade tensions could hurt export-led manufacturing. The global economic environment, marked by growing trade conflicts and geopolitical tensions, could notably impact export-driven manufacturing. The resurgence of protectionist policies under the new U.S. administration might lower global demand for Vietnam’s manufactured products, especially given Vietnam’s significant trade surplus with the U.S. Industrial growth is projected to slow to 7% in 2025. However, construction could see an uptick if major infrastructure projects proceed as planned. Services are set to grow 7.2% in 2025, driven by a boost in foreign and domestic tourism and technology-driven industries. There were nearly 4 million international arrivals in the first two months of the year, up 30.2% from the same period last year. Favorable visa measures, tourism promotions and international recognition have fueled this growth. The government’s focus on digital transformation and sustainability will open new opportunities, especially in financial and retail services. However, the service sector must navigate global economic uncertainties despite ongoing reforms.

Despite rising global tariffs, strong global demand for agricultural commodities and the benefits of free trade agreements will help sustain exports. Agriculture is expected to continue to solidly grow by 3.2% in 2025. However, climate change, limited technology access, and infrastructure gaps remain challenges to the sector. Improving productivity through technology and managing rising global tariffs while maintaining competitive pricing are key to sustaining export growth.

As inflation continues to rise, there is limited scope for further monetary policy easing. Geopolitical tensions, higher domestic consumption and accelerated public investment

disbursements could drive inflation up to 4% this year and 4.2% in 2026. In 2025, the State Bank of Vietnam (SBV) set an ambitious target of 16% credit growth to boost economic activity. However, its ability to support growth effectively is constrained by rising inflationary pressures, an increase in bad debts and a weakening Vietnamese dong. According to the ADB, it is thus crucial that the government coordinate monetary and fiscal policies.

The ADB said that the government has initiated an ambitious plan to boost growth. The plan aims for 8% growth in 2025 and 10% annually from 2026 onward. To do this, the investment goal is US$174 billion, or 33.5% of GDP, including US$36 billion in public investment for 2025, up from US$27 billion in 2024 (85% disbursed). Private investment is targeted at US$96 billion, with FDI at US$28 billion and other investments at US$14 billion. FDI registrations rose by 35.5% with disbursements up by 5.4% in the first two months of 2025 compared to the same period in 2024. To mobilize additional resources, according to Mr. Shantanu Chakraborty, the government may adjust its budget deficit to 4-4.5% of GDP.

Heightened trade tensions could impact trade, potentially narrowing the trade surplus. Slowing trade would reduce the current account surplus to the equivalent of 2.5% of GDP this year.

According to Mr. Shantanu Chakraborty, the Vietnamese government has set out an ambitious growth target that can significantly reduce external risks. Higher and sustainable economic growth is possible if ongoing, extensive institutional reforms are implemented swiftly and efficiently. These reforms will stimulate domestic demand, increase governance efficiency in the near term, and consequently promote private sector development over the medium and long term. If successful, these reforms could boost efficiency by cutting red tape, improving public services, streamlining government operations and enhancing economic resilience.