More potential: Workers in a garment factory in Ho Chi Minh City. The ADB says more growth for Vietnam is possible with continuing institutional reform. — AFP
HANOI: Vietnam’s economy is forecast to grow at 6.6% and 6.5% this year and next year, respectively, following robust 7.1% growth last year, according to the Asian Development Bank (ADB)’s flagship annual economic publication.
While maintaining a positive outlook for Vietnam this year and next, the Asian Development Outlook April 2025 report, released on Wednesday, highlighted risks to the forecasts, which were finalised before the announcement of US tariff measures.
“Strong trade, a recovery in export manufacturing and robust foreign direct investment fuelled Vietnam’s economic growth in 2024”, said ADB country director for Vietnam Shantanu Chakraborty.
“However, recent US announcements on tariffs, along with other continued global uncertainties, could pose significant challenges to the country’s growth this year,” Chakraborty said.
The evolving global economic environment, significantly affected by recent tariff-related announcements by the United States and geopolitical tensions, is posing significant challenges for economies dependent on export-driven manufacturing.
External uncertainties, such as tariff escalations, reciprocal measures, the prolonged war in Ukraine and ongoing instability in the Middle East could constrain near to medium-term global economic growth, the ADB warned.
Moreover, a slowdown in the United States and China, Vietnam’s major trading partners, could further affect economic prospects.
“The government of Vietnam has initiated an ambitious plan to boost growth, which can help mitigate the significant external risks,” Chakraborty added.
“Higher and sustainable economic growth is possible if ongoing, extensive institutional reforms are implemented swiftly and efficiently. Such reforms would stimulate domestic demand, increase governance efficiency in the near term and consequently promote private sector development over the medium and long term.”
Enhancing Vietnam’s participation in global supply chains is a critical policy challenge for the country’s development.
As global economic dynamics evolve, Vietnam’s advantages in value addition to global supply chains are also shifting.
It is important to understand the limitations and challenges associated with broadening its participation in and increasing its added values to global supply chains, to improve the country’s economic trajectory and long-term growth potential.
Global companies with operations already in the country present an opportunity to diversify external demand when export markets are tightened.
“The tariffs announced by the United States on April 2, have the potential to significantly impact Vietnam’s growth in 2025 and 2026.
“Maintaining economic stability, ensuring the well-being of the vulnerable and maintaining jobs remains a top priority, making additional fiscal stimulus essential to boost domestic demand.
“Extending the VAT reduction until late 2026 is a positive step, but broader measures, such as potential income tax and fee cuts, as well as social spending expansion, could also be considered.
“In addition, further structural reforms to relieve regulatory burdens for businesses and households will enhance longer-term growth,” he added.
The chief economist for the ADB in Vietnam, Nguyen Ba Hung, pointed out that compared with other Asean countries, Vietnam is among the nations with a significant trade surplus with the United States.
As a result, the risk of facing tariffs is higher. While countries like Singapore and the Philippines have lower trade surpluses and thus face less risk, Vietnam – along with Thailand, Malaysia, and others – has a notably high surplus.
This explains why South-East Asian countries are facing heavier tariffs. While these countries are seeking appropriate responses, it remains too early to fully assess the actual impact.
Hung explained that US tariff policies are creating uncertainty, causing foreign investors to adopt a wait-and-see approach.
Since the final tariff thresholds and timelines are unclear, many investors are holding off on making new decisions.
The Vietnamese government’s quick and well-prepared response has been viewed positively, but since the United States has yet to show any willingness to negotiate, it is important to keep monitoring the situation, Hung added.
He recommended that stimulating domestic demand is the right approach to overcoming current challenges.
Increasing government spending on infrastructure, technology and innovation will not only enhance business competitiveness but also attract more foreign investments.
Chakraborty said that Vietnam still holds a strong economic position within the region.
The US tariff actions, while creating pressure, could actually push Vietnam to better leverage the free-trade agreements it has in place, many of which have not been fully utilised.
With tariffs on the rise, expanding export markets to Britain, the European Union and other Asian economies such as South Korea will help Vietnam diversify its markets.
This will reduce the country’s dependency on the United States and take advantage of its growing role as a key economic hub in Asia. This is seen as a positive strategy to mitigate the impact of US tariffs. — Viet Nam News/ANN
