HSBC Vietnam CEO's economic outlook for 2025

The global economy has grappled with profound challenges in recent years, including the Covid-19 pandemic, geopolitical tensions in Eastern Europe and the Middle East, the collapse of China’s housing market, and surging inflation and interest rates. As a consequence, hopes for stability in 2025 may prove elusive. Geopolitical conflicts persist, China’s economic struggles continue, and the normalization of post-pandemic interest rates has been slower than anticipated. Adding further uncertainty, Donald Trump’s re-election as US president has reignited focus on tariffs, with trade tensions poised to escalate.

US trade policy poses significant risks to global economies. In early February, President Trump announced 25 per cent tariffs on imports from Canada and Mexico, with a 10 per cent tariff on Canadian energy, and an additional 10 per cent duty on Chinese products. While the measures on Mexico and Canada have been paused for a 30-day period, China announced its plan to retaliate with tariffs on $14 billion worth of imports from the US, effective from February 10. There is still a great deal of uncertainty about how the situation will unfold. But, in principle, these measures, if and when implemented in full, could have sweeping economic consequences, affecting more than 40 per cent of American imports. They are also expected to impact US profits, inflation, and trading partners, especially if retaliation occurs, further straining global trade flows and sentiment.

At the same time, tariffs threaten both global trade and broader growth. The increased level of uncertainty in the global trading system is likely to weigh on investment plans, while supply chains are ripe for rejigging around any potential tariff targets.

Diverse disinflation and more divergent monetary policy

HSBC’s global inflation forecasts for 2025 have risen modestly, from 3.3 per cent to 3.4 per cent, driven primarily by developed economies, where inflation increased from 2.3 per cent to 2.5 per cent, with a notable rise in Japan. It is clear that the global inflation story has grown increasingly diverse and uncertain. Disinflation has stalled in some regions, as the downwards pressure from falling energy prices and improved supply chains fades. Instead, factors such as fiscal and monetary policies, labor market conditions, and productivity now play a more critical role.

In 2025, potential US tariffs and retaliation risks could add to inflationary pressures while dampening growth. Rising food prices also pose a significant inflationary threat, particularly in countries like India, where domestic harvests heavily influence the consumer price index (CPI). Meanwhile, surging global coffee and cocoa prices have gained attention. On the policy front, the US’s expansionary fiscal stance has contributed to inflation in recent years and remains a risk heading into 2026. However, any fiscal impulse is expected to be limited, as House Republicans will likely push for spending cuts to offset tax reductions for corporations, small businesses, and households. Conversely, immigration and restrictive trade policies may keep inflation elevated. In Europe, a slightly contractionary fiscal stance in 2025 is expected to support the European Central Bank (ECB)’s efforts to bring inflation back to its 2 per cent target.

Despite persistent inflation uncertainties, room for rate cuts remains in 2025, though the timeline varies by region. Inflation in Central and Eastern Europe is expected to take longer to ease, delaying rate cuts there. In Asia, shallow easing cycles are anticipated, potentially even shorter if the US Federal Reserve (Fed) cuts are less than expected. The US Federal Open Market Committee (FOMC) is projected to slow the pace of rate cuts, bringing the Fed funds rate to a neutral range of 3.5-3.75 per cent by the end of 2025. However, risks of renewed tightening in 2026 linger, particularly if fiscal easing proves more extensive than forecast.

Asian outlook

A sharp rise in US import tariffs could disrupt the global economy, impacting not only inflation and growth prospects in the US but also trade and investment patterns across Asia and beyond. However, the specifics of this policy remain unclear, making it difficult to predict its effects on individual economies and sectors.

During Donald Trump’s first term as US president, heightened trade tensions with China diverted trade and investment into other markets, with ASEAN experiencing faster growth, while Chinese exports continued to soar by capturing market share from developed economies. This time, tariffs on China have been higher and broader, potentially extending to other economies. Products with Chinese components or re-exports from other markets might also face scrutiny.

Despite the significant rise in tariffs, the US’s largest bilateral trade deficit is still with mainland China, followed by ASEAN, Mexico, and Germany. Deficits with Japan and Taiwan are also sizeable, on par with India and South Korea, and well ahead of Canada (if services are included). China retains significant market share in US imports of tariffed goods, such as lithium-ion batteries and plastic items, suggesting that higher tariffs on imports could lead to further shifts towards other economies. So far, US tariffs on China have been imposed mainly on product components rather than final household items, to limit the “sticker shock” for consumers. Notwithstanding the risk of higher goods inflation in the US, there is still room to expand the number of tariffed items, in turn offering opportunities for others to capture China’s market share.

In 2025, a key question will be whether US trade policy focuses solely on imports directly from China or extends to economies using Chinese components or with significant trade deficits with the US.

Looking on the bright side, the US trade strategy provides a good opportunity for Asia to rethink its growth engines. First, the region should unleash its domestic consumption power to become less reliant on demand from other markets, gaining more balance between its savings and investments. Second, Asia can expand markets within itself rather than relying on Western countries. It could improve regional integration and resilience through intra-regional agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Beyond trade

Policy uncertainty also weighs on businesses, delaying cross-border investment. For Southeast Asia, this could dampen FDI in the short term, particularly in Vietnam and Malaysia, where it accounts for a substantial portion of overall investment. Moreover, a growing share of FDI from China adds another layer of uncertainty, as such factories often rely heavily on Chinese-produced components for export processing, potentially falling under closer US scrutiny.

On the brighter side, manufacturing investment across Asia could rebound strongly if US trade restrictions remain focused on China or prove less restrictive than anticipated. However, a broader, more restrictive US policy could lead to lasting impacts on investment.

Exchange rate volatility presents another challenge. As history shows, FX moves can be considerable in response to the introduction of tariffs, with the potential of partly, or even fully, offsetting the import price distortions that duties entail. For example, since mid-2021, the US dollar is up around 20 per cent against major currencies and has risen well over 30 per cent over the decades, creating a potential “buffer” against tariff effects through currency realignment.

Across Asia, a slowdown in consumer spending, though uneven, is partly due to the lingering effect of the earlier inflation shock. As price pressures normalize, consumption growth should stabilize, even if with a delay. However, a rise in global food prices poses a risk to Asian inflation, particularly in emerging economies, though the correlation between global and local food prices is generally weaker than that of crude oil and domestic energy costs.

Apart from Japan, the overall direction of monetary policy in Asia is still moving towards easing. Yet, heightened exchange rate volatility remains a concern. For example, since the Fed delivered its first interest rate cut of the cycle, a chunky 50 basis points in mid-September, almost all Asian currencies have seen sizable depreciation against the US dollar. While this cycle could have provided an opportunity for swift rate cuts, many Asian central banks have been forced to adopt a more “defensive” stance, keeping a wary eye on volatile FX markets.

In 2025, ongoing caution is warranted. The spread between local policy rates and the Fed funds rate is much lower compared to the pre-pandemic period, and in many cases even negative, leaving little “buffer” to anchor exchange rates against swings in Fed policy rate expectations. If monetary policy remains constrained by lingering price pressures and exchange rate volatility, governments may turn to fiscal measures instead.

What’s next for Vietnam?

While the world waits for US policies to unfold, Vietnam’s markets are likely to feel their effects, though the nation’s resilience offers hope. With a proven ability to overcome challenges, Vietnam is well-positioned to navigate these uncertainties, driven by its ambitious goals and remarkable progress.

In 2024, Vietnam’s GDP expanded by 7.09 per cent, reclaiming its position as ASEAN’s fastest-growing economy. This growth was supported by strong trade performance, particularly in consumer electronics, textiles, footwear, machinery, and agriculture, despite the setbacks from Typhoon Yagi, the strongest storm in 70 years. Given this broad-based recovery, Vietnam’s export momentum is expected to continue, even amid global uncertainties.

Vietnam has consistently attracted high levels of FDI, with inflows exceeding 4 per cent of GDP; among the highest in ASEAN. In 2024, it secured nearly $38.23 billion in FDI, with $25.35 billion disbursed by early January, ranking it 18th among the emerging markets that are most appealing to investors. In the past 20 years, Vietnam has become a major manufacturing base, deeply integrated into global supply chains. Its global value chain (GVC) participation rate has sharply risen over the years, and is now comparable to Singapore’s.

Vietnam’s exports have grown over 13 per cent annually on average since 2007, dominated by foreign-invested enterprises. From being a minor exporter before 2013, Vietnam recorded one of the fastest average annual export growth rates globally in the 2019-2023 period. It has therefore advanced significantly in import-export rankings, now standing second in ASEAN, trailing only Singapore. It is the world’s 23rd-largest exporter and 22nd-largest importer, with goods present in over 230 countries and territories. Vietnam ranked first globally in both the production and export of coffee and pepper in 2024, while maintaining its position as the third-largest rice exporter in 2023-2024. It also surpassed South Korea to become the world’s second-largest smartphone exporter.

Among ASEAN peers, Vietnam has gained the highest increase in global market share of exports since 2016, centering around consumer electronics such as smartphones, as well as textiles and footwear. Vietnam also has the highest export exposure to the US, comprising almost 30 per cent of shipments. Given its sizeable trade surplus and high export exposure to the US, Vietnam’s exports are vulnerable to tariff risks, and any escalation could pose challenges. Hence, it is essential for Vietnam to diversify its export range, particularly in high-value products like fruit and semiconductors, while keeping a close eye on US trade policy.

Despite Vietnam’s strong fundamentals, such as competitive labor costs and a favorable FDI environment, uncertainties around US trade policy could disrupt global business investment decisions. Therefore, to mitigate these risks, Vietnam must expand its network of international trade agreements, enhance non-tax incentives, and prioritize higher-value manufacturing. Alongside these efforts, the government is investing in infrastructure, workforce reskilling, and an investment support fund to comply with the Global Minimum Tax (GMT), ensuring the country remains resilient in the face of global economic shifts.

Vietnam envisions a transformative future, aiming to achieve upper-middle-income status by 2030 and high-income nation status by 2045. By 2050, the country is committed to reaching net-zero emissions while positioning itself as a global leader in the semiconductor and electronics industries. Additionally, Vietnam aspires for its digital economy to contribute 30 per cent of GDP by 2030, driving sustainable growth and innovation.

Let’s see how far Vietnam can go with its bold ambitions, robust fundamentals, and the current strong momentum!