US policy concerns can still be navigated

As we approach 2025, the global economic and geopolitical landscape remains fraught with uncertainty. While unpredictable shifts in geopolitics persist, there is cautious optimism for a brighter outlook in global economic growth, a trend that will inevitably influence Vietnam’s deeply integrated economy.

Dominic Scriven, chairman, Dragon Capital

Vietnam’s reliance on international trade, with total import-export turnover exceeding 100 per cent of GDP, underscores its vulnerability to external developments. To put this in perspective, global trade, valued at $25 trillion, accounts for 25 per cent of global GDP. Encouragingly, Vietnam’s trade volumes are rebounding to pre-pandemic levels - a positive development even though the trajectory towards sustained, robust growth remains gradual.

Inflation has eased both globally and domestically, with core inflation in Vietnam falling by 2.5 per cent. This has allowed central banks, including Vietnam’s, to lower interest rates. However, with rates already near historic lows, further reductions may be challenging, particularly as the US dollar strengthens under the return of a second Trump presidency.

A stronger dollar, driven by expansionary fiscal policies and increased domestic industry support, presents a dual challenge for Vietnam. On one hand, it raises import costs, putting pressure on inflation and trade balances. On the other, it complicates monetary policy as Vietnam seeks to maintain currency stability in an increasingly volatile environment.

Despite these headwinds, Vietnam’s corporate sector is showing signs of resilience. Following difficult years in 2022 and 2023, many businesses are now recovering, with improved revenues and profits. Nine-month data for 2024 indicates that 42 per cent of listed companies have posted growth exceeding 20 per cent, signalling a broad-based recovery. For 2024, we project overall market earnings growth of 18-19 per cent, with further recovery expected in 2025.

However, macroeconomic trends highlight a complex recovery. Credit growth has been steady, rising by 15 per cent annually, but much of this growth has been directed towards households rather than businesses. At the same time, money supply growth remains subdued at 12 per cent, reflecting tight liquidity and a cautious recovery trajectory.

US policy concerns can still be navigated, Photo Le Toan

Recent years have also seen Vietnam’s imports from China double, amplifying concerns about supply chain dependencies and the potential for trade defence investigations.

Currency manipulation allegations remain a potential challenge for Vietnam. The State Bank of Vietnam has consistently prioritised currency stability over competitive devaluation. Since 2022, the central bank has deployed over $20 billion from foreign reserves to stabilise VND, demonstrating its commitment to mitigating inflationary pressures and supporting domestic consumption.

Looking ahead, Vietnam must navigate a delicate balance in its relationship with the US. Expanding imports from the US - such as liquefied natural gas and aircraft - could help reduce trade imbalances while supporting industrial growth.

The impact of another Trump administration on developing economies like Vietnam is a growing concern. We suggest that under moderate protectionist policies, Vietnam’s GDP growth could reach 6.8 per cent in 2025. However, under more aggressive trade restrictions, growth could slow to 5.6 per cent.