Vietnam's Economic Outlook Remains Uncertain Amidst Global Trade Tensions

Strategic Insights -

Vietnam's economic outlook remains heavily reliant on the outcome of trade negotiations and is constrained by the elevated global uncertainty surrounding trade policies and economic growth, according to an International Monetary Fund (IMF) team led by Paulo Medas. The IMF team concluded discussions for the 2025 Article IV consultation with Vietnamese authorities from June 11 to 24, warning that high tariffs could take effect in the third quarter and significantly impact economic growth. If global trade tensions subside, the economic outlook would improve significantly, but downside risks are high, and policymakers must prioritize preserving macro-financial stability while navigating economic adjustments. Fiscal policy should take the lead in cushioning the near-term impact, especially under downside scenarios, while monetary policy should anchor inflation expectations and allow for exchange rate flexibility.

Key Takeaways:

  • Economic growth is projected to slow to 5.4 per cent in 2025 and decelerate further in 2026 if global trade tensions escalate.
  • A scenario of high tariffs in the third quarter would lead to reduced exports and investment, exacerbating financial stress.
  • Achieving non-discriminatory trade agreements and implementing infrastructure and structural reforms could significantly boost medium-term growth.
  • Fiscal policy supported by a low level of public debt should cushion the near-term impact, with accelerated public investment and social safety nets being crucial.
  • Monetary policy should focus on anchoring inflation expectations, and exchange rate flexibility is vital in adjusting to external shocks.
  • Consideration should be given to monetary easing if global interest rates decline and inflation falls.
  • The government must prioritize strengthening financial sector soundness, including improving bank supervision, liquidity buffers, and the bank resolution framework.
  • The implementation of an ambitious reform agenda is essential for boosting medium-term growth.

Statistics:

  • Economic growth projected to slow to 5.4 per cent in 2025 and decelerate further in 2026.
  • High tariffs scenario: economic growth declining to 5.4 per cent in 2025 and 2026.
  • Downside risks are high, with a further escalation of global trade tensions or tightening of global financial conditions weakening further exports and investment.
  • Low level of public debt; fiscal policy should take the lead in cushioning the near-term impact.
  • Monetary policy's limited room for maneuver; decisively focused on anchoring inflation expectations.
  • Allowing exchange rate flexibility and providing some monetary easing if global interest rates decline and inflation falls.

Sources:

  • International Monetary Fund (IMF) team led by Paulo Medas
  • 2025 Article IV consultation with Vietnamese authorities, concluded on June 24