Prolonged Middle East conflict risks weigh on Vietnam’s growth; ADB projects 7.2% GDP growth in 2026 and 7.0% in 2027, with Southeast Asia at 4.7-4.8%

Vietnam’s economy is forecast to grow at a high rate this year even as external risks rise amid global uncertainty, according to a report released by the Asian Development Bank (ADB). The ADB said the regional outlook for developing Southeast Asia remains broadly positive, supported by solid domestic demand, under an “early stabilization” scenario.

Regional outlook and scenario assumptions

Under the ADB’s early stabilization scenario, regional GDP growth is expected to reach 4.7% in 2026 and edge up to 4.8% in 2027. The report also highlights that if the conflict in the Middle East persists, downside risks would increase and growth prospects across economies would diverge.

Vietnam’s near-term outlook

For Vietnam, the ADB expects a positive near-term outlook. It cited strong export performance before the United States adjusts retaliatory tariffs, along with supportive policies and steady investment, as factors that helped Vietnam grow solidly over the past year.

The report cautioned that US trade measures are evolving, and that the ongoing Middle East conflict and broader global uncertainties could constrain exports and capital inflows, adding pressure to Vietnam’s growth prospects this year.

ADB growth forecasts for Vietnam

Against this backdrop, ADB economists forecast Vietnam’s GDP growth at 7.2% in 2026 and 7.0% in 2027. The projections are based on a scenario in which the Middle East conflict stabilizes soon, though uncertainty remains very high.

“Although Vietnam’s GDP growth in 2026 is not as high as the 8% pace seen in 2025, it remains a positive growth rate given the current environment,” said Shantanu Chakraborty, ADB’s Country Director for Vietnam.

Divergence across Southeast Asian economies

The ADB described a 2024–2027 GDP growth path marked by divergence among regional economies. It said Vietnam is the “brightest spot” and a key growth driver, with expected GDP growth of 7.2% this year, the highest in the region.

For Indonesia, Cambodia and the Philippines, growth is expected to recover and remain steady at about 4.5%–5.5%. The ADB said Indonesia’s growth is expected to improve on stable domestic demand, but risks persist if the Middle East conflict continues. Myanmar is forecast to recover from a 2025 downturn due to reconstruction activity, while Brunei’s energy production normalization is expected to support growth.

By contrast, the ADB projected slower growth in Malaysia and Thailand due to weak global trade, fading “early export” benefits, and the impact of the Middle East conflict. It added that technology exports are expected to help ease pressures.

In the Philippines, the report said growth tends to slow as global commodity prices push up inflation and as Middle East-related uncertainties weigh on consumption and investor confidence.

Key drivers and risks for Vietnam in 2026

The ADB said investment remains the main growth driver for Vietnam in 2026. On risks, it noted that the Middle East conflict could disrupt flows of oil, gas and fertilizers through the Hormuz Strait, raising shipping costs and causing delays.

It added that, together with the Ukraine conflict, these developments could increase commodity price volatility and continue to disrupt global supply chains. Slower growth among major trading partners could reduce trade surpluses and slow Vietnam’s growth rate.

Demand-side pressures

On the demand side, the ADB said domestic consumption could be affected by weaker household spending and tighter bank credit.

Policy support

The report said growth momentum in 2026 is expected to come from accelerating public investment and implementing expansionary monetary policy. It noted that the government aims to speed disbursement of public investment, around USD 38 billion, especially for infrastructure, to support construction activity.

External factors: exports, FDI and inflation

While FDI and exports remain key growth engines, the ADB warned that external factors—including the Middle East conflict and US tariff policies—could affect capital flows and export activity. It said FDI inflows may slow amid a global investment slowdown, with investors more likely to expand existing operations rather than start new projects.

The report also pointed to potential headwinds from the global minimum tax, along with infrastructure bottlenecks and administrative hurdles, which could slow new FDI registrations.

It further said the services sector is expected to continue expanding in 2026, supported by a tourism rebound and technology-enabled activities.

Inflation is forecast to rise to 4.0% in 2026 and then fall to 3.8% in 2027.