Vietnam’s February data signals growth risks amid subdued demand, tariff woes
Meanwhile, foreign investment pledges, especially from China, surge as manufacturers seek alternative hubs to navigate Sino-US trade tensions
[HO CHI MINH CITY] VIETNAM’s economic activity clicked higher in the second month of the year as businesses bounced back from the lull of the country’s long Tet (Lunar New Year) holiday, but the latest figures signal growth challenges in the current year for the trade-reliant economy.
Trade, production and consumption growth for January and February collectively were below official targets, owing to subdued external and internal demand, based on a report by Vietnam’s statistics office (GSO) that was released on Thursday (Mar 6).
These softer indicators pose a “big challenge” to the country, hitting its growth target of 7.7 per cent for the first quarter of this year, said the GSO.
They could also challenge the country’s ambitious goal of achieving at least 8 per cent growth for 2025.
Retail sales over the first two months rose 9.4 per cent year on year (yoy) – albeit failing to match the pre-pandemic level of 12.6 per cent in 2019 – and shrank 2.5 per cent in February from a month earlier.
February’s industrial production jumped 17.2 per cent from a year earlier – the strongest increase since January 2024 – but fell 2.2 per cent month on month.
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Over the two-month period, growth in industrial output was also slower.
Exports also did not grow as expected. Although the first two months’ shipments were up 8.4 per cent, they were below the full-year target of 12 per cent.
The country posted a rare monthly trade deficit of US$1.6 billion in February as imports surged, marking its first deficit in nine months.
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Over January to February, it posted a trade surplus of US$1.5 billion, much lower than the US$5.1 billion last year and US$3.5 billion in 2023.
In its survey for the February purchasing managers’ index (PMI), S&P Global pointed out that new orders and manufacturing production in Vietnam decreased in February, due to subdued demand both domestically and internationally, leading to the third consecutive month of contraction in factory activity.
Rising purchasing activities reflected manufacturers’ efforts to ensure secured input amid uncertainty around availability and supply chain delays, as well as their optimism about production recovery in the coming months.
Trade risks buoy FDI
While disbursement of foreign direct investment (FDI) in the first two months of this year grew moderately at 5.4 per cent yoy to US$3 billion, FDI pledges – a measure of future inflows – climbed nearly 36 per cent to US$7 billion.
“This trade escalation (between the US and China) is expected to further accelerate FDI inflows into Vietnam, as manufacturers seek alternative production hubs,” noted analysts at Ho Chi Minh City Securities Corporation.
South Korea was Vietnam’s top investor in dollar terms over the two months, contributing US$1.5 billion, followed by Singapore, with US$1.48 billion.
The investments include newly registered capital, adjusted capital, and share purchases and capital contributions.
Mainland China led the pack in the number of newly registered projects – at 160 – in the two-month period, accounting for 31 per cent of the total.
In terms of newly pledged capital, China was also the largest investor as it registered about US$680 million in the first two months of 2025, up 78 per cent from the same period last year and making up 31 per cent of the total amount.
Including Hong Kong and Taiwan, the share of newly pledged projects and capital from Greater China accounted for nearly half of the total in the first two months.
Of note is that last year, investment from mainland China accounted for 28 per cent of new projects – an increase from 22 per cent in 2023, signalling an upward trajectory.
“As the US moves to raise import restrictions on China, the latter’s exporters are compelled to reroute shipments to alternative markets,” HSBC economists wrote in a recent note.
“This in turn creates a significant problem for certain economies that now find themselves overwhelmed with imports from China.”
Prime example
Vietnam is one prime example.
In the first two months of this year, Vietnam recorded a trade surplus of US$17 billion with the US, reflecting a 16.3 per cent increase compared to the previous year, while its trade deficit with China expanded by 36.9 per cent to reach US$15.4 billion.
This raises Vietnam’s trade risks in an environment of higher and additional tariffs by Washington under President Donald Trump.
Vietnamese producers are also suffering from tight margins in various sectors, as China’s excessive production output capacity puts downward price pressure on its trading partners.
The South-east Asian country recently imposed temporary anti-dumping duties on China’s hot-rolled coil steel, aimed at addressing concerns about surging low-cost imports that could disrupt the domestic market.
“By imposing their own steel-related restrictions against China, as (South) Korea and Vietnam (have done), some economies are hoping to mitigate their US trade risks and avoid experiencing direct US pressure,” HSBC economists added.
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