US tariff risks weigh on Vietnam’s growth outlook - Fitch

Investing.com -- Fitch Ratings has affirmed Vietnam’s Long-Term Foreign-Currency Issuer Default Rating at ’BB+’ with a Stable Outlook on Friday.

The rating agency forecasts Vietnam’s economic growth will slow to 5.6% in 2025 and 5.3% in 2026, down from 7.1% in 2024, as external pressures increase despite strong manufacturing export performance in the first half of 2025.

Vietnam faces significant exposure to potential US trade actions due to its heavy reliance on merchandise exports, which accounted for 83% of GDP in 2024. The United States represents 30% of Vietnam’s total exports, with significant Chinese inputs in the supply chain.

The US has announced a 46% reciprocal tariff on Vietnam during a 90-day pause period. This uncertainty poses risks to Vietnam’s growth model, especially if final tariffs are significantly higher compared to Vietnam’s export competitors.

Despite these challenges, Fitch expects Vietnam’s medium-term growth outlook to remain robust at approximately 6%, outperforming many peers in the ’BB’ category. This projection assumes continued solid foreign direct investment in export-oriented industries, favorable demographics, and ongoing reform initiatives.

The Vietnamese government has raised its 2025 growth target to 8% and plans to implement counter-cyclical policies to offset potential negative impacts from increased tariffs. These measures may include easing credit policies and adopting a looser fiscal stance to accelerate public investment.

Fitch notes that Vietnam’s State Bank credit growth target of 16% for 2025 will likely increase leverage in the economy, which was already estimated at approximately 135% of GDP at the end of 2024, significantly higher than the ’BB’ median of 52.5%.

The rating agency projects government debt-to-GDP ratio will rise to 34.2% in 2026 from an estimated 32.2% in 2024, reflecting a widening fiscal deficit. However, this remains well below both the projected ’BB’ median of 53.3% and Vietnam’s official 50% government debt ceiling.

Foreign exchange reserves fell by about 10% year-over-year to $81.2 billion in February 2025. The Vietnamese dong has depreciated by around 2% so far this year, underperforming peers, and may face additional pressure if the US implements significant tariff increases.

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