Hanoi (VNA)ꦚ – Singapore-based United Overseas Bank (UOB) has revised its forecast for Vietnam’s 2025 GDP growth to 7% from its previous projection of 6.6%, following the strong momentum from 2024.

"We expect positive momentum from domestic drivers such as production, consumer spending, and visitor arrivals to contribute to the activities, especially in the first half," the bank said in its latest report. According to UOB experts, Vietnam ended 2024 on a strong note, with real GDP growth surging to 7.55% in the fourth quarter of 2024. This figure was well above median consensus view of 6.7% and the bank's forecast of 5.2%. With the surprisingly strong performances in the past three quarters, Vietnam’s economy expanded 7.09% in 2024 from 5.1% in 2023, ahead of consensus call of 6.7% and official target of 6.5%. This is the best showing since the post-COVID rebound in 2022 (8.1%), the bank said. The manufacturing and services sectors continued to be the main drivers of growth, while external trade maintained its strong pace through 2024. The upswing in semiconductor sales since mid-2023 suggests that momentum is likely to continue further in the next 1-2 quarters. The National Assembly has set a growth target of 6.5-7.0% for 2025, while Prime Minister Pham Minh Chinh recently called for at least 8% expansion, supported by faster disbursement of public investment to boost infrastructure development and attract more investment.

Based on the disciplined approach to its fiscal stance and the way public expenditure has been disbursed so far, the 8% goal seems overly ambitious but there is still merit in hitting the target, UOB experts said. However, uncertainty on trade outlook will be a major risk for Vietnam in the second half, with its rising dependence on exports, which grew to a record high of more than 400 billion USD in 2024, just about the size of Vietnam’s nominal GDP of 450 billion USD. On a more positive note, UOB anticipates the US government will impose additional tariffs at a more measured and paced manner, thereby reducing pressure on major exporting countries to the US, including Vietnam.

SBV to hold rates steady

The bank said the overall and core inflation still stayed below the official target of 4.5% in 2024, particularly during the last months of the year, which has opened up the possibility for the State Bank of Vietnam (SBV) to ease monetary policy. However, the exchange rate market has now emerged as another concern for the SBV, which is likely to keep its policy rates steady to fend off depreciation pressures on the domestic currency. "Given the uncertainty ahead on the US Fed policy trajectory and geopolitical/trade tensions after US President Trump takes office, we expect SBV to keep its main policy rate steady for now, with the refinancing rate held at 4.5% ", the report stated.

The Vietnamese dong has weakened against the US dollar, along with other Asian currencies, since late Q3/2024 amidst the heat of the US presidential election. Indeed, the Vietnamese dong ended 2024 at the record low of 25,485 USD, for a 5% drop in the full year and the third consecutive annual decline. “Our latest Monthly FX & Rates Strategy in January highlights the prospects of further strength of the US dollar in the half of this year, on the back of the return of Donald Trump as US President and the multitude of policy uncertainties that he will implement during his second administration from January 20. The Vietnamese dong remains vulnerable to external factors such as the Fed policy”. Markets have repriced for fewer Fed rate cuts in a Trump 2.0 era which helped to boost the US dollar. The Vietnamese dong is likely to take direction from Trump’s tariff policy and the Chinese yuan. Given the external headwinds are not likely to dissipate in the near term, the Vietnamese dong looks set for further losses against the US dollar. Overall, the bank pegged USD/VND forecasts at 25,800 in Q1 of 2025, 26,000 in Q2, 26,200 in Q3, and 26,000 in Q4./.