Vietnam’s robust domestic activity in July buoys growth amid trade strains
Despite the 20% US tariff, the country’s comparative advantage holds, given that other major Asean peers face a 19% tax rate
[HO CHI MINH CITY] Vietnam’s domestic economic activity was buoyant in July, supported by robust spending and investment, while exports braced for a potential slowdown in the coming months as higher US tariffs kick in on Aug 7.
Estimates from the Vietnamese government’s statistics agency (NSO) on Wednesday (Aug 6) pointed to retail sales having grown by 9.2 per cent in July, accelerating from the eight-month low of 8.3 per cent in June.
In the first seven months of 2025, retail activity expanded by 9.3 per cent year on year, stronger than the year-ago period’s 8.9 per cent.
This underscores “resilient private spending, driven in part by strong real wages”, noted Adam Ahmad Samdin, economist at Oxford Economics.
Credit growth also hit a 10-year high – 9.64 per cent – in the year to Jul 28, indicating robust economic activity, he added.
Vietnam’s central bank on Tuesday (Aug 5) even urged lenders to further slash interest rates and keep deposit rates stable to boost lending and support the country’s growth target.
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The Vietnamese government is targeting economic growth of 8.3 to 8.5 per cent in 2025, up from 7.09 per cent in 2024.
On the production front, soft data from S&P Global’s latest purchasing managers’ survey for July showed that strengthening domestic demand drove new orders, which expanded for the first time in four months, growing at the fastest pace since November 2024.
While new export orders remained in contraction for the ninth consecutive month due to the US tariff hikes, manufacturers secured sufficient domestic business to return total new orders to growth.
Foreign and government investments have also accelerated, supporting the country’s growth outlook this year.
In a recent note, Maybank analysts, citing the improved business landscape resulting from reduced red tape and a more predictable legal environment, wrote: “The steady rollout of private-sector reforms will cushion the headwinds to external trade from the US tariffs by promoting domestic investment and enhancing competitiveness for foreign direct investment (FDI).”
Public investment disbursement in the first seven months came in at 388 trillion dong (S$19 billion), almost 40 per cent of the sum for the full-year plan. This is a marked increase from the 27.8 per cent for the corresponding period in 2024.
Disbursed FDI from January to July also hit the highest level for a seven-month period in at least nine years, rising by 8.4 per cent from the year before, to US$13.6 billion.
FDI pledges, which indicate future inflows, grew 27.3 per cent year on year to hit US$24.09 billion.
Given that the 20 per cent US tariff on Vietnam is now broadly on par with the 19 per cent imposed on other key Asean exporters, “Vietnam’s comparative advantage as a favoured investment destination remains”, said Yun Liu, Asean economist at HSBC.
Export growth likely to ease
Exports in July continued to grow strongly, at 16 per cent year on year, bringing the year-to-July turnover to US$262.4 billion. This was driven largely by shipments in two sectors – that for computers and electronics, and for machinery and equipment.
In the first seven months, Vietnam recorded a trade surplus of US$10.2 billion, with exports and imports expanding by 14.8 per cent and 17.9 per cent, respectively.
In line with the robust export performance, industrial production rose by 8.5 per cent from the same period last year.
“We expect export momentum to slow, given that the tariff-pause is slated to end on Aug 7,” said Oxford Economics’ Samdin.
With front-loaded orders having temporarily boosted exports ahead of the tariff deadline, he is expecting a payback effect in the coming period.
Uncertainties also persist, largely due to the lack of clarity on the definition of “transhipment” – such goods will be subject to a higher 40 per cent tariff imposed by the US – as well as upcoming sector-specific levies.
HSBC’s Liu added: “Downside risks to (Vietnam’s) growth have not faded in this challenging trade environment, as the situation remains fluid.”
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