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Vietnam: 1Q25 GDP overshadowed by Trump tariffs
- Vietnam's real GDP in 1Q25 slowed to 6.93% y/y, from the 7.55% expansion in 4Q24. This is slightly below our and consensus median forecast of 7.1%. The slower pace is partly due to festive season of Lunar New Year holidays, as factory activity moderated during the quarter while exports momentum picked up.
- Despite a respectable 1Q GDP report, what markets are focusing on is the surprisingly large 46% reciprocal tariff slapped against the country by US President Trump that is set to be effective 9 Apr. While there are efforts underway to negotiate with the US, the outcome remains uncertain.
- Outlook – After an upbeat year in 2024, the outlook for Vietnam has decidedly turned negative with the US levying a punitive tariff on the country. Unless there are reversals in the meantime, Vietnam would need to brace for the impact of the tariff, including the postponement or cancellation of export orders and investment plans being put on hold. In view of the significant downside risks, we're lowering our forecast for Vietnam's GDP growth in 2025 by 1% pt to 6.0% (from previous call of 7.0%) vs 7.09% in 2024. The National Assembly had previously set a growth target of 6.5-7.0% for 2025, while Prime Minister Pham Minh Chinh has maintained “at least” 8% of expansion this year.
Growth pace moderated in 1Q25
Vietnam’s real GDP moderated to 6.93% y/y in 1Q25, according to the National Statistics Office on Sun (6 Apr). The pace is slightly below our and consensus view of 7.1% and behind the 7.55% growth in 4Q24.
The slower pace is partly due to festive season of Lunar New Year holidays, as factory activity moderated during the quarter while exports momentum picked up. Manufacturing output slowed to 9.3% y/y from 9.97% in 4Q24. While the latest PMI data suggest that Vietnam’s manufacturing sector returning to expansion zone in Mar after 3 straight months contraction, the data may be put to a severe test after the announcement of “reciprocal tariff” by US President Trump on 2 Apr.
Outlook – Prospects dimming post-Liberation Day
After an upbeat year in 2024 and a somewhat respectable 1Q25 GDP report, that is already in the past. What the markets are focusing on is the surprisingly large 46% reciprocal tariff slapped against the country by US President Trump that is set to be effective 9 Apr, in an unprecedented announcement that lifted the average US tariff rate to a level not seen in a century.
US: “Liberation Day” tariffs very broad-based & material
While there are efforts underway by Vietnamese officials to negotiate with the US, the outcome remains highly uncertain. Vietnam Communist Party General Secretary To Lam offered to reduce tariff rates to zero, according to US President Trump who said both had a phone call on 4 Apr. A delegation led by Deputy PM Ho Duc Phoc is now in the US for negotiations. We had expected the US to levy a rate of around 10% for most countries on Liberation Day, which would have been more tolerable, but that turns out to be just the universal baseline tariff rate and that additional reciprocal rates are to be added on globally.
Vietnam is particularly vulnerable to trade restrictions and would need to brace for the impact of the tariff spreading through ahead, due to the open nature of its economy: export constitutes 90% of Vietnam’s GDP, second highest after Singapore (174%) in ASEAN, as well as its outsized exposure to the US market.
The US accounted for 30% share of Vietnam's exports of USD 402 bn in 2024 and its largest market, followed by China (15%) and South Korea (6%). The major products sold to the US in 2024 include electrical products HS85 (USD 41.7 bn), mobile phones and related HS84 (USD 28.8 bn), furniture HS94 (USD 13.2 bn), footwear HS64 (USD 8.8 bn), apparel knitted HS61 (USD 8.2 bn), and apparel nonknitted HS62(USD 6.6). Products from these sectors accounted for nearly 80% of the shipments that Vietnam sent to the US in 2024.
In view of the significant downside risks, we’re lowering our forecast for Vietnam’s GDP growth in 2025 by 1% pt to 6.0% (from previous call of 7.0%), vs 7.09% in 2024. We are pegging the growth projections for 2Q25 and 3Q25 at 6.1% and 5.8%, respectively. Under these conditions, both the reqlized FDI and registered FDI could back towards the USD 20 bn level this year. As these are just preliminary assessments, the risks are tilted towards the downside given the unprecedented nature of the US tariff measures.
The National Assembly had previously set a growth target of 6.5-7.0% for 2025, while Prime Minister Pham Minh Chinh has maintained “at least” 8% of expansion this year. Given the circumstances, these official projections may require further reassessment unless the reciprocal tariff can be reduced to somewhere around 20% or better, from the current 46%.
Suan Teck Kin
Head of Research
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Peter Chia
Senior FX Strategist
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