The Vietnamese dong has underperformed compared to most other ASEAN-6 currencies, depreciating by almost 2% year-to-date, and remaining at the weak end of its trading band. We foresee continued weakening pressures on the VND, given Vietnam’s high vulnerability to elevated US reciprocal tariffs and a tariff-induced global economic slowdown. The State Bank of Vietnam (SBV) could tolerate continued VND weakness against the USD, aiming to improve competitiveness amid heightened global trade turbulence and uncertainties. Policymakers have been weakening the VND daily reference rate since February 2025, coinciding with the start of imposition of higher US tariffs on its major trading partners like China. Exchange rate flexibility would also provide room for potential refinancing rate cut to support economic growth in 2H25.
We are lowering our 2025 real GDP growth forecast for Vietnam to 5.8% (from 6.8%). While Vietnam’s goods exports growth demonstrated resilience at the start of 2Q25 (Apr 2025: 19.8% YoY, Mar 2025: 14.5% YoY), this was due to the temporary front-loading of US orders (export growth to the US of above 30% YoY), driven by the 90-day suspension of the 46% US reciprocal tariff on Vietnamese imports, and the exemption for key electronics products. Although Vietnam’s economic growth may hold up above 6% YoY in 1H25, we see downside risks to export-oriented manufacturing expansion in 2H25. These risks stem from weakening sentiment and cautious output among factories (see chart), and heightened uncertainties surrounding the tariff negotiations with the US (first round starting May 7). In our view, the negotiation path between various countries, including Vietnam, and the US will be full of hurdles, as the US is keen to correct wide trade imbalances, while retreating from globalisation and pursuing unilateralism. Notably, Vietnam was the US’s third largest goods trade deficit partner in 2024, and would be scrutinised by the US on its role as a transshipment hub for Chinese companies given that it has been a top China+1 beneficiary.
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