Vietnam to keep striding

After upside surprises in ASEAN economies’ growth in 2Q, strong momentum has continued. This is particularly evident for trade-dependent countries like Singapore and Malaysia, but Vietnam’s magnitude of upside surprise is in a league of its own. Vietnam delivered a significant upside surprise in its 3Q25 growth, as high as 8.2% y-o-y, sustaining the strong momentum in 2Q25. This outperformance easily beat market expectations of 7.2% y-o-y, placing Vietnam as the fastest-growing economy in ASEAN, once again.

What surprises us the most is the resilience of the externally-oriented industries, and this reflects in manufacturing and trade. Despite an uncertain trade environment, industrial production (IP) grew 10% y-o-y in 3Q. Not surprisingly, trade continues to boom with exports and imports both hitting close to 20% y-o-y growth. But what is more encouraging is the trade surplus Vietnam has retained, which has more than doubled to USD3bn in 3Q, from 1H25. This indicates Vietnam has widened its trade surplus with trading partners other than the US, although the latter remains its biggest exporting destination with one-third of the total share.

A closer look at the data reveals the main driver of trade: the electronics products. Chart 2 clearly outlines the strong momentum in both consumer electronics and electronics components. This boosts Vietnam’s exports to the US significantly, with exports still hitting almost 30% y-o-y in 3Q. While frontloading trade activities have peaked across ASEAN, Vietnam’s export growth to the US market remains elevated, reflecting another trend we have been witnessing across Asia: that tech-exposed economies are benefiting from high AI-driven tech demand, providing a hard backbone to their trade.

In addition to trade resilience, the services sector continues to see strong growth. Consumer-oriented retail sales are seeing some meaningful improvements, finally. Retail sales jumped 12% y-o-y in 3Q, narrowing the gap with its pre-pandemic trend to only 3%, from 10% at the start of 2025.

Meanwhile, tourism-related sectors, including transport and accommodation, are also seeing an ongoing boom. In last month’s commentary, HSBC outlined how Vietnam has now turned into the new darling for Chinese tourists, despite not having a visa-free scheme. Indeed, Vietnam is leading ASEAN in tourism recovery. After welcoming 15 million tourists as of 3Q, Vietnam is seeing the return of tourists equivalent to 120% of 2019’s level. While Vietnam does not rely on tourism as much as peers such as Thailand, its rising competitiveness in tourism nonetheless partially shields it against the headwinds in trade of goods.

Apart from the supply-side of the economy, it is equally important to assess the demand-side. Real consumption expanded over 8% y-o-y while real investment grew close to 10% y-o-y in 3Q. In particular, the focus on accelerating mega infrastructure projects has been a priority. That said, there is still room to expand further, as the disbursement rate of public investment is only 50% of the annual target as of 3Q.

In addition to public investment, FDI remains a key driver in fuelling Vietnam’s growth. Since the “liberation day” in April, there have been increasing concerns on the sustainability of Vietnam’s FDI inflows. Total FDI rose 15% y-o-y as of 3Q but new registered FDI fell 9% y-o-y. Interestingly, the composition of Vietnam’s FDI portfolio has shifted this year. In 2024, Singapore, Korea and mainland China were the top-three investors.

However, Singapore and mainland China now account for around a quarter of new FDI, respectively, while Korea’s share dwindled, with the US filling the gap. In other words, despite trade uncertainties, the world’s two largest economies continue to pour their investments into Vietnam. After all, now that all ASEAN EM are back to the same starting line, facing tariffs of “19-20%”, existing beneficiaries of the trade tensions will continue to benefit, for example, Malaysia and Vietnam.

Outside of growth, inflation remains largely in check. Despite a modest pick-up in momentum of 0.4% m-o-m, headline inflation rose 3.4% y-o-y in September, in line with market expectations (HSBC: 3.4%; BBG: 3.4%). The main drivers were rising food prices, due to increasing demand during the National Day holidays, and increasing petrol prices. Core inflation remains stable at 3.2% y-o-y, well below the SBV’s “4.5-5%” inflation ceiling.

With inflation taking a backseat, the State Bank of Vietnam (SBV) aims at higher credit growth to support growth. Credit growth has seen a spike to 20% y-o-y at the end of August, on track with the SBV’s expectation of annual expansion of 19-20%, higher than its original target of 16%.

All in all, Vietnam’s growth outperformance makes it stand out in ASEAN, again. Given the upside surprise in 3Q outturn, we are now raising our GDP growth forecast to 7.9% (prev: 6.6%) for 2025 and 6.7% (prev: 5.8%) for 2026. But the biggest downside risk to growth remains trade uncertainties. The government recently maintained its 2025 growth target at 8% and also announced its 2026 growth target at 10%. Meanwhile, HSBC also raises its inflation forecasts slightly to 3.3% for 2025 (prev: 3.2%) and 3.5% for 2026 (prev: 3.2%).