Economic growth softens but remains solid in Q1

GDP growth surprises markets on the upside: Vietnam's GDP expanded 7.8% on a year-on-year basis in Q1, following an over three-year high reading of 8.5% in the prior quarter. Q1's reading was the weakest in a year, but it exceeded market expectations and remained among the strongest globally.

Public investment and tourism sustain growth: Compared to the previous period's data, figures in Q1 worsened for the industrial sector (+8.9% in annual terms vs +9.7% in Q4), the services sector (+8.2% vs +8.8% in Q4) and the agricultural sector (+3.6% vs +3.7% in Q4). The slowdown was broad-based across GDP production components, but the strong pace of expansion demonstrates the economy’s resilience. Growth in the industrial sector was driven by faster disbursement of public investment in several large-scale projects launched last year, worth an estimated USD 200 billion. While also decelerating, the services sector was aided by increased consumer demand during the Lunar New Year holidays and a record number of tourist arrivals.

Middle East war to weigh on growth in Q2: Panelists expect economic growth to moderate in Q2. Ongoing disruptions in the Middle East are likely to weigh on the external sector through higher transport costs, while also dampening domestic demand amid rising inflation and potential fuel shortages. Elevated upside inflation risks could influence the interest rate outlook, increasing the likelihood of a more hawkish stance from the Central Bank, as policymakers will likely prioritize macroeconomic stability over short-term growth.

Panelist insight: Commenting on the outlook, Suan Teck Kin, analyst at UOB, stated: “While external demand and production activities remained robust in 1Q26, the energy shock from the Middle East poses near-term pressures to Vietnam and other Asian economies. First is the higher costs (price effect) of energy as Brent crude prices continued to hover in the US$100-110 range per barrel, which will impact directly on the transport and logistics sectors. Energy supply is the next critical factor as existing inventories and reserves are being depleted with the Strait of Hormuz remaining a chokepoint to shipping. […] Taking into account the above, we are revising down Vietnam’s full year growth forecast.”

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