Asia’s rising star is facing stiff growth headwinds

VIETNAM’S trailblazing post-pandemic recovery is no longer on the fast track, and the economy is slowing markedly. First-quarter gross domestic product (GDP) growth, for instance, unexpectedly slowed to 3.3 per cent. Apart from the pandemic years, this was the weakest growth rate since the global financial crisis in 2009. There are stiff headwinds hampering domestic and external demand. But cyclical pressures must not overshadow a strong structural story. We explain the nature and breadth of the growth risks, and why there is still light at the end of this tunnel.

Easing global growth has led to Vietnam’s worst export recession in over a decade, while the domestic property sector slowdown is hurting construction and real estate activities. These issues have flowed through to manufacturing, which, along with construction and real estate, employ a third of Vietnam’s workforce. The amplitude of these downside economic risks is thus quite large.

Vietnam’s export revenue peaked in Q2 last year, around May. Compared to that point, almost all export categories are now earning much less, reflecting the worrying breadth of the slowdown. While outbound shipments of metals and minerals have recorded the worst performance of all, revenues from traditional exports like textiles and footwear are also falling swiftly. Electronics, which are the mainstay of Vietnam’s export story, have also weakened substantially in the last two quarters.