VN economy demonstrates resilience amid cost pressures, external uncertainties

VIETNAM, 22 JULY 2026 —

Vietnam's economy has demonstrated resilience in the face of mounting cost pressures and external uncertainties, with the country maintaining relatively strong growth momentum, according to a report by UOB. Despite recent economic indicators suggesting a mixed short-term outlook, Vietnam's growth prospects remain positive, with the Purchasing Managers' Index (PMI) rising to 52.8 in May from 50.5 in April and 49.8 a year earlier. However, higher energy costs are beginning to weigh on manufacturing activity and macroeconomic stability, with inflation remaining a key concern.

The consumer price index rose by 5.6% year-on-year in May, marking the third consecutive monthly increase and the highest level in six years. Industrial production growth eased to 9% from 10% in April, bringing average growth in the second quarter to 9.5%, significantly lower than the 11% recorded in the first quarter. Trade activities have also begun to cool down, with exports expanding by 18% in May, down from 21% in the previous month, while imports continued to surge by 33.8%. As a result, Vietnam's trade balance posted a deficit of $12.7 billion in the first five months of the year, compared with a surplus of around $5 billion in 2025, marking the largest deficit in nearly three decades.

UOB noted that Vietnam's balance of payments is likely to remain under pressure as imports of machinery and equipment for major infrastructure projects continue to increase, alongside higher energy costs driven by elevated oil prices. However, over the medium term, Vietnam remains committed to ambitious development goals, including achieving average annual GDP growth of at least 10% during the 2026-2030 period. By 2030, the country aims to attain upper-middle-income status, develop a modern industrial base, rank among the world's 30 largest economies, and raise per capita GDP to approximately $8,500. UOB maintains its forecast of 7% GDP growth for Vietnam in 2026, although growth could moderate to around 6.7% during the second and third quarters.

The exchange rate outlook is expected to be more stable, but risks remain, with inflation becoming a key policy concern for the State Bank of Vietnam (SBV). Average inflation during the first five months of 2026 reached 4.3%, nearing the Government's target of 4.5%, while full-year inflation is projected to rise to as high as 5.5%. UOB expects the central bank to keep policy rates unchanged as it balances inflation management with exchange-rate stability. The SBV has encouraged commercial banks to lower lending rates to support businesses and borrowers, complemented by fiscal measures such as extending the 0% tax rate on petrol and selected fuel products through the end of June.

Improving US-China relations following talks between US President Donald Trump and Chinese President Xi Jinping in mid-May are seen as a positive factor for Vietnam's export outlook. Reduced tensions between the world's two largest economies could help limit the spread of tariff measures while reinforcing Vietnam's position as a key destination in the ongoing global supply-chain diversification trend. On that basis, UOB expects the Vietnamese dong to continue depreciating gradually in a controlled manner, with forecasts of the USD/VND exchange rate at 26,500 in the third quarter of 2026, 26,400 in the fourth quarter, 26,300 in the first quarter of 2027, and 26,100 in the second quarter of 2027.

The medium-term outlook for the currency remains supported by solid economic fundamentals, sustained FDI inflows, and consistent macroeconomic policies. A potential upgrade of Vietnam to emerging-market status in September 2026 is expected to provide an additional boost to capital inflows. This development is likely to have a positive impact on the Malaysian economy, given the close trade and investment ties between the two countries. As a key trading partner, Malaysia is likely to benefit from Vietnam's continued growth and economic integration into the regional and global economy.

In terms of regional impact, Vietnam's economic performance is closely watched by its neighbors, including Malaysia, given the potential spillover effects on trade and investment. The ASEAN region as a whole is expected to benefit from Vietnam's growth, with the country playing an increasingly important role in regional supply chains and trade agreements. As UOB noted, Vietnam's commitment to ambitious development goals and its position as a key destination in the ongoing global supply-chain diversification trend are likely to have a positive impact on the regional economy.

Looking ahead, Vietnam's economic prospects remain positive, with the country well-positioned to achieve its development goals and maintain its position as a key player in the regional economy. While challenges remain, including managing inflation and maintaining exchange-rate stability, UOB's forecast of 7% GDP growth for Vietnam in 2026 suggests that the country is likely to continue to demonstrate resilience in the face of external uncertainties. As the regional economy continues to evolve, Vietnam's growth and economic integration are likely to have a positive impact on Malaysia and the broader ASEAN region, with opportunities for trade, investment, and cooperation expected to increase in the coming years.

Related: UOB · State Bank of Vietnam (SBV) · Donald Trump · Vietnam