AMRO forecasts Vietnam’s economy to grow by 6.5 per cent in 2025

AMRO forecasts Vietnam’s economy to grow by 6.5 per cent in 2025

ASEAN+3 Macroeconomic Research Office (AMRO) estimates Vietnam's economy to grow by 6.5 per cent in 2025, after posting a strong 7 per cent growth in 2024.

Despite potential headwinds from heightened US trade protectionism, Vietnam's growth is projected to be supported by improving domestic demand and front-loaded external orders.

To sustain this momentum, an appropriate policy mix is essential to promote growth while safeguarding financial stability. These insights are highlighted in the 2024 Annual Consultation Report on Vietnam released by the AMRO on March 6.

Despite being hit by Super Typhoon Yagi, the Vietnamese economy continued to gain momentum in 2024, driven by robust external demand. The recovery was led by manufacturing exports, a rebound in the hospitality sector, and steady inflows of foreign direct investment (FDI). However, household spending and private investment by domestic firms remained stagnant.

In 2025, external demand is projected to remain strong in the first half of the year due to front-loaded orders ahead of the potential increases in US tariffs. Local demand is expected to improve, while public investment would be expedited before the next Vietnam Presidential election in early 2026.

Despite the stronger demand pressure, consumer price inflation is forecast to decline from 3.6 per cent in 2024 to 3.5 per cent in 2025 on the back of a moderation in global energy prices.

The Vietnamese authorities have implemented a combination of monetary and fiscal measures to support economic recovery. The government has extended several relief initiatives into 2025, including a 2 per cent reduction in VAT, along with deferrals for tax and land rent payments.

On monetary policy, the State Bank of Vietnam has kept operating interest rates low, reduced open market operation rates, raised the indicative credit growth target, and extended the loan moratorium programme for an additional six months. Additionally, state-owned commercial banks have lowered short-term deposit and lending rates to steer broader market interest rates downward.

Risks to Vietnam’s growth outlook are skewed to the downside. The country’s strong export recovery could face external headwinds, including weaker-than-expected consumer demand in the US, a pronounced economic slowdown in Europe, and slower growth in China. Additionally, uncertainty surrounding US trade policy further clouds the export outlook.

The financial sector continues to grapple with lingering credit risks, driven by the delayed impact of an uneven economic recovery and the aftermath of Typhoon Yagi. The loan moratorium programme freezes borrowers' loan classifications and allows them to defer principal repayments on existing loans, while enabling them to secure new credit from banks.

In the housing market, delays in implementing new real estate-related laws could further dampen prospects. Amid various market challenges, some property developers are facing difficulties with debt repayment and refinancing, adding to the sector’s vulnerabilities.

In the longer term, Vietnam’s growth potential is constrained by several structural challenges, including insufficient infrastructure development, a persistent mismatch between workforce skills and industry requirements, and the underdevelopment of domestic supporting industries and micro-, small and medium-sized enterprises (MSMEs).

Adding to these pressures are emerging challenges such as cyberattacks, extreme weather events, and the rapidly aging population, which pose growing threats to the country’s macroeconomic and financial stability.

Given an uneven economic recovery, Vietnam’s ample fiscal space can provide room for the government to extend additional support measures to vulnerable segments such as MSMEs and low-income households. Moreover, the disbursement of public investment can be expedited to boost short-term growth and strengthen long-term growth potential.

AMRO noted state revenue management should be strengthened further by enhancing the enforcement and compliance of tax laws, simplifying the tax system, broadening the revenue base, and minimising tax exemptions.

Revising the State Budget Law to reduce the settlement time of the government annual accounts and minimising carry-over spending should also be considered.

"Given contained inflationary pressure, weak domestic demand, and subdued performance of MSMEs, monetary policy should remain accommodative to foster a more inclusive economic recovery," AMRO said.

"The recent rate cut by the US Federal Reserve has eased pressure on the VND and lowered the risk of speculative capital outflows. Monetary reforms should focus on gradually phasing out quantitative credit targets and transitioning towards a more market-driven interest rate approach."

VIR