SINGAPORE, March 6, 2025 – Vietnam’s economy is estimated to grow by 6.5 percent in 20251, after posting a strong 7.0 percent growth in 2024. Despite potential headwinds from heightened US trade protectionism, growth is projected to be supported by improving domestic demand and frontloaded 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 today by the ASEAN+3 Macroeconomic Research Office (AMRO). The report is based on AMRO’s Annual Consultation Visit conducted in September 2024, using data available as of November 6, 2024.
Recent developments and outlook
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 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 frontloaded 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 percent in 2024 to 3.5 percent 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 2.0 percent reduction in value-added tax (VAT), along with deferrals for tax and land rent payments. Fiscal stance for 2025 is expected to remain neutral, with the fiscal deficit projected to narrow slightly. 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 program 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, vulnerabilities, and challenges
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 program 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.
Policy recommendations
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.
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 minimizing tax exemptions. Revising the State Budget Law to reduce the settlement time of the government annual accounts and minimizing carry-over spending should be also 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. The recent rate cut by the US Federal Reserve has eased pressure on the Vietnamese dong and lowered the risk of speculative capital outflows. Monetary reforms should focus on gradually phasing out quantitative credit targets and transitioning toward a more market-driven interest rate approach.
Commercial banks should accumulate more financial buffers, improve corporate governance, and strengthen risk management. Reforming bad debt management mechanisms is necessary to allow more efficient debt recovery processes. The banking resolution framework should be strengthened to ensure timely and orderly resolution of banks in distress.
Real estate developers should continue diversifying their financing sources, while strengthening corporate governance. To curb speculative housing demand, macroprudential measures such as loan-to-value ratio, debt service to income ratio, and credit concentration limits should be put in place.
Achieving sustainable development in Vietnam requires a concerted and strategic approach. Prioritizing infrastructure upgrades, improving labor productivity, and strengthening MSME capabilities will be pivotal in unlocking the country’s growth potential. Strengthened policy coordination is essential for the effective implementation of climate adaptation and mitigation initiatives. Ensuring the financial sustainability and transparency of the social insurance fund is imperative to address the challenges posed by a rapidly aging population and secure long-term economic resilience.
1AMRO’s projection of growth for 2025 was revised down to 6.5 percent in January 2025 from the previous 6.7 percent which was done late 2024 and shown in the Annual Consultation Report. The revised projection reflected recent developments in the Vietnamese economy and the global economy.
About AMRO
The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute toward securing macroeconomic and financial resilience and stability of the ASEAN+3 region, comprising 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support regional financial arrangements, and provide technical assistance to the members. In addition, AMRO also serves as a regional knowledge hub and provides support to ASEAN+3 financial cooperation.
About AMRO’s Annual Consultation Report
The Annual Consultation Report was prepared in fulfillment of AMRO’s mandate. AMRO is committed to monitoring, analyzing and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.