Rising costs test Vietnam garment industry resilience

Vietnam’s crucial textile and garment sector is demonstrating an encouraging recovery in 2025, with export volumes rising robustly and turnover reaching approximately USD 45 billion by the end of the year (based on 10-month data, which showed a strong recovery trend). This rebound reflects sustained global demand for apparel, particularly from major markets like the U.S. and the European Union (EU), and benefits from Vietnam's stable and integrated position within the Southeast Asian supply chain.

The export engine continues to drive the national economy. Gross Domestic Product (GDP) growth for Q3 2025 reached a strong 8.23% year-on-year, significantly higher than the 5.8% previously estimated, with manufacturing and export-oriented services contributing the majority of this increase. Employment in industrial zones has shown a positive trend toward recovery, though it is still measured against pre-pandemic peaks.

Mechanistically, export growth is fundamentally supported by preferential trade agreements, notably the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), which secure lower tariffs and enhance Vietnam’s competitiveness against regional rivals. Vietnamese textile firms are increasingly adopting digital sales channels and lean production methods to offset the dual pressures of rising input costs and growing labor constraints.

Despite the significant rebound in volume, margin pressures remain intense, with average operating margins compressed by an estimated 150 basis points due to rising global prices for key inputs like cotton and synthetic fibers. Forward integration into higher-value activities, such as fashion branding and leveraging e-commerce platforms, is emerging as a strategic necessity to secure long-term profitability.

Financial markets have reflected the positive export data. Industrial equities, particularly the export-oriented components of the VN30-index, have seen positive sentiment, rising approximately 6% year-to-date. Exchange-rate stability, with the Vietnamese Dong (VND) holding steady around 23,800 per U.S. Dollar, has been crucial in preserving export margins against rising input costs. Furthermore, sustained Foreign Direct Investment (FDI) inflows targeting industrial parks continue to strengthen and modernize manufacturing capacity.

Key risks include input-cost volatility, persistent skilled labor shortages, and the increasing threat of trade protectionism or tariffs (such as the reciprocal taxes imposed by the U.S. on Vietnamese textile products) in major markets. Monitoring export volumes, input costs, and employment growth will provide critical guidance on sector resilience. If current dynamics of strong orders and strategic adaptation continue, garment exports could expand a further 8–10% in 2026, contributing meaningfully to overall GDP growth and the industrial employment recovery.