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[HO CHI MINH CITY] Vietnam’s economy recorded stronger consumption in January, driven by the Chinese New Year celebrations, but production showed signs of slowing down as external trade challenges and holiday-related closures affected factory activities.

Preliminary estimates by the country’s statistics office on Thursday (Feb 6) showed that consumer spending was upbeat; there was a rise in demand for food, beverages and transport during the country’s largest spring festival – locally known as Tet – from Jan 25 to Feb 1. 

Vietnam’s retail sales in January grew 9.5 per cent year on year, marking the strongest growth since May 2024 and the 38th consecutive month of growth in retail activity.

This was buoyed by foreign tourism. The country posted a 36.9 per cent year-on-year rise in international arrivals for the month.

The record number of foreign tourists in January, which came in at about 2.1 million, was driven by surges in arrivals from China, Cambodia, Japan, America, Canada and Russia. 

However, the holiday season also drove an acceleration in the consumer price index (CPI), which rose to 3.63 per cent year on year in January. This was the highest level since July 2024, and up from 2.94 per cent in December. 

Core inflation, which excludes volatile food and energy costs, quickened to 3.07 per cent, from 2.85 per cent in December.

External trade uncertainties

While consumption and tourism painted a positive picture for Vietnam’s economy in the first month of 2025, production slowed down. This was the result of the Chinese New Year break, as well as trade uncertainties amid US President Donald Trump’s tariff tantrums.

Industrial output in January rose by a mere 0.6 per cent, easing sharply from the 8.8 per cent growth in the preceding month. This was the slowest rise since February 2023. 

While the country ended 2024 with double-digit growth rates in both inbound and outbound shipments, exports in January shrank by 4.3 per cent from the year before to about US$33.1 billion.

Imports fell by 2.6 per cent to about US$30.1 billion, resulting in a decline in the trade surplus on goods to US$3 billion, from US$3.6 billion in the same month last year. 

“The growth momentum (of Vietnam’s exports in 2024) may slow in 2025 due to the resurgence of Trump-led deglobalisation,” said Nguyen Ly Thanh Luong, lead analyst at Vietnam Investors Service. 

Export risks have been on the rise, he said, noting that the US accounted for around 40 per cent of the total newly initiated trade investigations against Vietnamese export products between 2017 and 2024. 

“Increasing tariffs under Trump 2.0 will threaten the profit of Vietnamese export companies and require that they respond with similar cost-cutting actions,” he added. 

Vietnam’s manufacturing purchasing managers’ index (PMI) fell to 48.9 in January, from 49.8 in December, marking the second consecutive month of contraction in factory activity. It was also the country’s lowest PMI reading tracked by S&P Global since last September. 

Both output and new orders fell for the first time in four months, while foreign demand shrank for the third month. Manufacturers also kept scaling back employment, with staffing levels shrinking for the fourth consecutive month. 

On Wednesday, Vietnam’s Prime Minister Pham Minh Chinh warned of a trade war, which would disrupt the global supply chain and narrow markets for Vietnamese exports.

“We need to consider potential scenarios and prepare solutions to respond to (these changes) swiftly and effectively,” he was quoted by state media as having said. “We must absolutely avoid being passive, caught off guard, or we would miss good opportunities and momentum for growth.”

Pressures on dong

The hawkish US Federal Reserve stance last year weighed on the dong, which depreciated by around 5 per cent against the US dollar to 25,386 dong in 2024. 

Analysts expect a smaller US-Vietnamese interest differential this year, driven by the US Federal Reserve’s rate cuts, to strengthen the dong.

However, the tariff threats and higher-for-longer US Fed funds rate might cause some depreciatory pressure on the Vietnamese currency, though analysts believe it is unlikely that the US would impose tariffs on Vietnamese goods.

Nguyen Manh Dung, chief market strategist at Ho Chi Minh City Securities Corp, said: “While it remains unclear how Trump views Vietnam, we see little likelihood of the country becoming a target, given its modest economic size and limited relevance to US voters.”

Analysts at Fitch’s research firm BMI said the dong’s strength will be supported by steady foreign direct investment (FDI) inflows amid robust economic growth despite US threat risks.

As at Jan 31, FDI pledges (which point to future disbursements) returned to growth by jumping 48.6 per cent from the year before to US$4.3 billion; realised FDI remained stable, with a 2 per cent increase year on year to US$1.5 billion. 

More ambitious growth targets

The Vietnamese government has proposed an upward revision of 1.5 percentage points for the 2025 gross domestic product growth target, from 6.5 to 8 per cent, and 0.5 percentage point for CPI, from 4.5 to 5 per cent.

This proposal, set to be discussed at an extraordinary session of the National Assembly from Feb 12 to 18, suggested that the push for higher growth comes with the trade-off of increased inflation, said analysts.

Regulators have raised the credit growth target this year to 16 per cent, up from 15 per cent previously, which the banking sector barely met last year.

BMI analysts wrote in a report on Feb 5: “The Vietnamese government appears to expect an even higher growth potential of 8 to 10 per cent. If this view persists, the State Bank of Vietnam might cut rates to further boost economic growth.”

They believe that there would be more room for such action, especially if credit growth and inflation fall short of the country’s targets and the dong’s depreciatory pressures ease.