Vietnam Q1 growth slows due to shrinking exports amid weaker demand

[HO CHI MINH CITY] Vietnam’s economy grew at a slower pace in the first quarter of 2023 due to shrinking exports on weakening global demand, according to estimates released by the General Statistics Office (GSO) on Wednesday (Mar 29).

The country’s gross domestic product (GDP) expanded by 3.32 per cent for the first three months of the year, down from 5.92 per cent in the previous quarter and 5.02 per cent in the first quarter of 2022.

“The slow recovery of the world economy with the tightening monetary policies in several countries have reduced consumption demands in major trade partners. This created an impact on Vietnam‘s imports and exports volume,” the office said in a statement.

Last month, Vietnam’s deputy trade minister Do Thang Hai said that the country is targeting exports growth to be about 6 per cent in 2023, which would be slower than last year’s expansion of 10.5 per cent.

The estimates by GSO reported a 11.9 per cent year-on-year slump in the trade-reliant nation’s exports in the first three months of the year. 

Shipments of smartphones, the leading export revenue generator, plunged 15 per cent to US$13 billion in Q1, while electronics shipments fell 10.9 per cent. Fibre and yarn exports saw the steepest decline of 33.9 per cent from the same quarter last year. 

Industry and construction sector led the slowdown in Q1 GDP performance with a contraction of 0.4 per cent.

Meanwhile, Vietnam’s industrial production in March returned to the downward trajectory by falling 1.6 per cent from a year earlier, reversing the increase of 3.6 per cent in February and easing the slippage of 8 per cent in January. The overall industrial production for Q1 fell 2.2 per cent year on year.

Dinh Quang Hinh, the head of macro and market strategy at VNDIRECT Securities Corporation, said that Q1’s industrial production and GDP growth figures “may have already hit the bottom”.

“The prospect for the second quarter is set to be improved thanks to the revival of order volume starting from February. But it might not be too upbeat and could still be lower than the government’s plan, which targets GDP to grow by 6.7 per cent in the second quarter,” he said.

He added that China’s reopening is also expected to give the global economy a boost in the coming months.

The analyst also expects that the reduced pressure on the financial environment, after the turmoil in the US and European banking sectors, will enable businesses to return to investments and manufacturing, especially when the speed of interest-rate hikes eases. Earlier this month, Vietnam’s central bank cut its discount rate to 3.5 per cent, from 4.5 per cent, in a bid to boost economic growth amid the ongoing global uncertainties.

“Against the backdrop of an easing in economic expansion in the last two quarters, I expect the government to implement additional measures to support growth, especially when inflation is on track to be under the government’s control,” Hinh stated. “I think (the State Bank of Vietnam) is likely to cut key interest rates (again) in the second quarter.”

Vietnam’s Q1 core inflation, which excludes volatile items and administered prices of goods by the government, was up 5.01 per cent year on year.

Overall, average consumer prices in the January-March period rose 4.18 per cent from a year earlier. The government has said that it aims to cap inflation for this year at 4.5 per cent. 

The Ministry of Finance’s price management department attributed the price increases seen in Q1 to the escalating cost of construction materials and housing, as well as higher consumption of food and electricity during the Chinese New Year holiday in January. 

Analysts expect domestic consumer spending growth will slow down in Q2 due to the unfavourable outlook of Vietnam’s manufacturing sector, which will have an impact on jobs and spending.

In a recent report, Fitch Solutions forecast that real household spending in Vietnam in 2023 will rise by 7.3 per cent year-on-year, a shade lower than the 7.5 per cent growth seen in 2022.

“This (consumer spending growth) is supported by growing domestic demand, as well as the expected recovery of international tourism. However, we expect real household spending growth to be inhibited in 2023 due to the effects of increased inflation,” it noted.