Domestic factors to drive Vietnam's GDP growth in 2025: VinaCapital

In the “Looking Ahead to 2025” report of VinaCapital, Chief Economist and head of Market and Research at the investment management firm Michael Kokalari highlighted that Vietnam’s exports to the US surged by more than 20% this year, primarily driven by a 40% increase in electronics and high-tech products, marking a significant recovery from the 10% decline in 2023. However, the extraordinary increase in exports to the US is expected to moderate next year, partly due to the anticipated “soft landing” economic slowdown in the market.

Additional reasons to expect slower export growth next year are related to the US inventory re-stocking cycle. Furthermore, exports across Asia are currently being boosted by “pull-forward” demand in the lead-up to Donald Trump taking office – that will lead to lower demand next year. Consequently, Vietnam’s manufacturing output growth will likely drop in 2025, as most manufactured products are destined for foreign markets.

Despite these headwinds, VinaCapital expects Vietnam will achieve 6.5% GDP growth in 2025, with growth drivers shifting more toward domestic factors.

The firm notes that weak consumer sentiment has impacted Vietnam's economic growth in 2023 and 2024, though some improvement was observed this year. Real retail sales growth is estimated at 6% for 2024, which lags below Vietnam's typical 8-9% growth rate. Moreover, about half of the projected growth is attributable to the continued recovery of foreign tourist arrivals from 70% of pre-COVID levels in 2025 to 100% this year.

The VinaCapital expert held that consumption accounts for over 60% of Vietnam’s economy so healthier consumption growth would easily compensate for slower growth in exports/manufacturing/tourist arrivals next year. The Vietnamese Government has indicated that it will increase infrastructure spending in 2025, and hopes are high that this and other measures will also make consumers more confident to increase their spending.

“We anticipate a pickup in consumer spending next year for a different reason: we expect Vietnam’s Government to take significant steps to unfreeze the real estate market”, he said.

A modest increase in infrastructure spending, accounting for 6% of GDP, would not sufficient to significantly boost the Vietnamese economy. However, the combination of faster progress on such projects as HCM City’s airport and Hanoi’s new ring roads, coupled with real estate market revival, would make consumers feel more confident to spend money because of the “wealth effect” linked to the value of the property that many middle-income Vietnamese consumers own.

The National Assembly set a 2025 growth target of 6.5-7%, with aspirations of reaching 7-7.5%. The Government has recently announced multiple measures to boost the economy, including increasing infrastructure spending and serious reforms.

VinaCapital believes that concrete measures will be required to offset the expected drags on 2025 GDP growth.

The firm expects manufacturing growth to drop from 10% this year to 6% next year, which would knock about 1% point off the GDP growth. Meanwhile, the expansion of foreign tourist arrivals is expected to fall from 40% this year to 15% next year, which would knock more than 1.5% points off the GDP growth.

The Government says it will ramp up infrastructure spending to support economic growth in 2025 while strengthening the country’s long-term growth prospects.

VinaCapital holds that infrastructure spending will grow 15-20% to US$31 billion in 2025 on projects like completing additional 1,000 kilometres of highways, the first phase of the Long Thanh International Airport in the southern province of Dong Nai, and expansion of the two current airports in Hanoi and HCM City.

It is possible that 2025 will be somewhat volatile for Vietnam’s economy and stock market. In the first half of 2025, falling export growth will likely deal a bigger blow to Vietnam’s GDP growth than many economists expect.

That dip would probably prompt aggressive the Government’s actions to support the economy, especially in light of the very ambitious GDP growth targets. The net result could be subdued growth at the beginning of 2025, followed by a strong acceleration towards the end of 2025, according to Kokalari.