Infrastructure boost: A billboard for the Ho Chi Minh City Metro. Big projects such as the metro line are expected to spur Vietnam’s economy. — Bloomberg
HO CHI MINH CITY: Domestic factors, including a ramp-up in government infrastructure spending, a revival of the real estate market and a recovery in consumer spending, will help Vietnam sustain gross domestic product (GDP) growth of around 6.5% next year, Michael Kokalari, chief economist at VinaCapital, says.
Exports to the United States and foreign tourist arrivals surged this year, but the growth of both was set to slow dramatically next year, Kokalari said in his recent Looking ahead at 2025 report.
Exports to the United States rose by well over 20% this year (versus a 10% drop in 2023), the main factor supporting 2024 GDP growth.
That was driven by a 40% jump in exports of electronics and other high-tech products.
“However, we expect the extraordinary increase in exports to the United States to moderate next year partly because the US economy is likely headed for a soft landing.”
Additional reasons to expect slower export growth next year were related to the US inventory re-stocking cycle, while exports across Asia were currently boosted by “pull-forward” demand in the lead-up to Trump taking office, which would lead to lower demand next year.
Consequently Vietnam’s manufacturing output growth would likely drop next year, since most products produced here were sold to overseas customers.
“We do not expect Vietnam’s exports and/or manufacturing output to actually shrink next year because a steady inflow of foreign direct investments ensures that more factories begin producing (and exporting) products in Vietnam every year.
“Also, despite the expected slowdown in manufacturing-output growth next year, we expect Vietnam to achieve 6.5% GDP growth in 2025 because we expect the composition of the growth to transition to more domestically driven factors next year.”
Local consumer research firms such as Cimigo and InFocus Mekong Research had said weak sentiment among consumers weighed on economic growth in 2023 and 2024, but had improved somewhat in 2024.
Real retail sales growth (stripping out the impact of inflation) was around 6% in 2024, below the typical 8% to 9% rate.
Furthermore, about half of that 6% was attributable to the continued rise in foreign-tourist numbers from 70% of pre-Covid levels in 2023 to 100% in 2024.
Consumption accounted for over 60% of the economy (versus 25% for manufacturing), and so higher consumption growth would easily compensate for slower growth in exports, manufacturing and tourist arrivals next year.
The government had indicated it would increase infrastructure spending in 2025, and hopes were high that this and other measures would also make consumers more confident about increasing spending.
“We anticipate a pickup in consumer spending next year also for a different reason: we expect Vietnam’s government to take significant steps to unfreeze the real estate market.
“We believe that a recovering real estate market would have a far greater impact on both consumer sentiment than increased infrastructure spending.”
A modest increase in infrastructure spending, which accounted for 6% of GDP, would not be sufficient to significantly boost the economy.
However, a combination of faster progress on projects like the Long Thanh International Airport and Hanoi’s new ring roads and a real estate market revival would probably make consumers feel more confident to spend money because of the “wealth effect” linked to the value of properties that many middle-class people own.
The National Assembly had set a 2025 GDP growth target of 6.5% to 7% and government officials recently announced multiple measures to boost the economy, including increased infrastructure spending and serious structural reforms.
These measures would certainly boost long-term GDP growth but might not be sufficient to offset slower export growth next year, which meant more drastic measures could be required to meet growth targets.
It is possible that 2025 will be somewhat volatile for the economy and stock market.
“In the first half of 2025, falling export growth will likely deal a bigger blow to GDP growth than many economists expect.
“That dip would probably prompt aggressive government actions to support the economy, especially in light of the very ambitious GDP growth targets.
“The net result could be subdued growth at the beginning of 2025, followed by a strong acceleration towards the end of the year.” — Viet Nam News/ANN
