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What is the broad outlook for the global economy in 2025, in the context of the new US administration?

Trinh Ha, a financial market analyst from Exness Investment Bank

According to reports by major global institutions, the US is anticipated to experience a slight deceleration in growth in the coming year compared to 2024, falling to approximately 2.1-2.7 per cent. This rate remains higher than earlier forecasts, indicating that the US economy will continue to exhibit robust momentum relative to other advanced economies, such as those in Europe or Japan.

The robust recovery of the US economy post-pandemic has spurred increased consumer spending, leading to a sharp decline in savings rates. Economic stimulus packages and the reopening of the economy after the pandemic have been pivotal factors underpinning this trend.

While heightened consumption supports economic growth, spending that outpaces income levels may present long-term risks. The US economy could encounter challenges associated with inflation, particularly given anticipated tax policies, which may contribute to inflationary pressures.

The US Federal Reserve’s decision to increase the neutral interest rate to 0.75 per cent signals its preparedness to address inflation risks. Higher interest rates could reduce foreign investment inflows into emerging markets like Vietnam. While certain markets may witness a revival of foreign direct investment flows, the pace of investment is expected to be subdued.

Capital is likely to remain in the United States, driven by its strong economic growth prospects and high-interest rate differentials.

How do these developments make a mark further afield from the US?

Developed economies like Europe and Japan are also set to experience fluctuations. The European economy continues to face difficulties, with leading indicators such as manufacturing and services PMIs persistently declining, alongside concerns surrounding the implications of new US policies.

Although European economic stimulus measures may partially mitigate these challenges, Vietnam’s export outlook remains constrained in the short term, with projected growth levels similar to those of 2024.

Meanwhile, the Japanese economy is forecasted to show promising signs of growth in 2025, with GDP expected to rise by 1-1.2 per cent. While income levels and consumer spending faced volatility during the latter half of 2024, these are anticipated to recover, supported by wage increases at the year’s end and sustained growth into 2025. Given this positive economic outlook, exports to Japan are projected to witness expansion.

For Vietnam, the prospects for economic growth present a golden opportunity to accelerate production and export activities. Industries such as electronics, textiles, and processed agricultural products are attracting substantial investment, with promising export potential to major markets like the United States and the European Union.

Additionally, rising incomes and shifts in consumer behaviour are expected to bolster domestic demand, creating further impetus for local manufacturing enterprises. However, to fully capitalise on these opportunities, Vietnam must address challenges such as enhancing competitiveness, improving the business environment, and ensuring sustainable development.

How can predictions of a soft landing for the US economy impact its stock markets?

The US stock market recently underwent a significant correction following the Federal Open Market Committee’s meeting on the latest interest rate cuts.

In the long term, US technology firms – particularly the biggest names of Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, and Meta – are anticipated to achieve robust profit growth of approximately 18-20 per cent. Similarly, other companies in the S&P 500 are expected to record profit growth in the range of 13-15 per cent, an improvement compared to the 8-10 per cent observed in 2024. Companies operating in cloud technology, AI training, and data centres are also forecasted to maintain strong growth trajectories.

This growth is largely driven by the advancement and application of AI, in conjunction with chip technology integration across various industries. Furthermore, the US’ expected pro-business policies are forecast to bolster this development. The reduction of corporate income tax to 15 per cent is predicted to contribute positively to the earnings per share of the US-listed companies.

Despite declining from record highs, the US market’s price to earnings (P/E) ratio remains elevated compared to historical averages. This discrepancy reflects investor optimism for high-profit growth in the future. However, the US stock market is expected to face significant corrective pressures due to these high valuation levels. Leading global valuation organisations project that the S&P 500 index will continue to grow, maintaining levels between 6,500 and 6,600 points in the coming year.

From my perspective, risks to the US stock market stem predominantly from the growth trajectory of the very top tech companies. These firms have exhibited remarkable growth alongside high P/E levels in recent periods. Should their profit growth slow, the broader market could undergo substantial corrections.

How will fluctuations in the US stock market affect foreign investment into Vietnam?

Attracting capital back to the Vietnamese market will depend on the context of major global economies and the potential for improvement in the domestic market.

Firstly, with the US economy maintaining stable growth, coupled with the appeal of high-risk assets and competitive interest rate pressures, global capital flows will likely continue gravitating towards the US, thereby somehow affecting inflows into Vietnam.

However, with interest rates on a downward trend, the net outflows of foreign investors from Vietnam’s market could still stabilise, albeit at lower levels. This trend could reverse if the US economy encounters risks, inflation continues to decline rapidly, the US Federal Reserve accelerates interest rate cuts, or Vietnam’s market achieves an upgrade in 2025.

It is estimated that, in the event of an upgrade, capital allocation to Vietnam could reach $1.5-1.7 billion. This would serve as a significant impetus for Vietnam’s stock market in 2025.

Secondly, Vietnam’s market would benefit further if the KRX system operates effectively, a central clearing and settlement system is implemented, issues related to foreign ownership limits are resolved, and disclosure rates in English are enhanced and streamlined.

Vietnam’s market in 2025 and beyond is expected to achieve better long-term growth, with a focus on stability in the technology sector. The government has been prioritising high-tech investments, such as partnerships with Nvidia and increased support for Viettel in establishing Vietnam’s first chip manufacturing plant.

These initiatives enable Vietnam to mitigate the recent decline in traditional advantages such as low labour costs, energy costs, and other competitive edges.

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