Vietnam Q2 GDP growth accelerates but slowdown looms

Vietnam on Thursday reported faster economic growth in the second quarter, driven by the services sector, despite a slump in trade that analysts say could signal a slowdown ahead.

Vietnam, a regional manufacturing hub, has been trying to prop up its economy amid slowing global demand, with the central bank cutting its policy rates four times so far this year and lawmakers extending a cut in value added tax.

Gross domestic product (GDP) in the second quarter grew 4.14% from a year earlier, faster than the 3.28% expansion in the first quarter, the General Statistics Office (GSO) said in a report. First quarter growth was revised down from 3.32%.

The services sector grew 6.11% in the second quarter from a year earlier, while the agricultural sector grew 3.25%, and the manufacturing and construction sector expanded 2.50%, the GSO said.

But exports in the second quarter fell 14.2% from a year earlier due to weak global demand, the agency said, adding that imports fell 22.3%.

Analysts say the sharp decline in imports could indicate a slowdown ahead in industrial production, as businesses reduce procurement of raw materials and equipment. Vietnam is a key exporter of electronics, garments and textiles, footwear and wood items, including for top global brands.

Capital Economics on Thursday revised down its forecast for Vietnam’s GDP growth to 4.5% for this year, from 5.0%.

“With the external environment likely to remain unfavourable in the second half of the year, we expect the economy to struggle in the coming quarters,” Capital Economics said.

It added the central bank is likely to cut its policy rates further, by 100 basis points, by the end of this year, noting that inflation has eased.

The country targets GDP growth of 6.5% this year, slower than an expansion of 8.02% last year.

The GSO added that industrial output in the January-June period fell 1.2% from a year earlier. Retail sales of goods and services in the first half of this year rose 10.9% from a year earlier, while average consumer prices in the period rose 3.29%.

Output of smartphones, Vietnam’s largest export earner, fell 27.1% in the second quarter from a year earlier, to 39.8 million units, the GSO said. Garment output in the quarter fell 2.9% and footwear output edged down 4.1%.

By Khanh Vu & Phuong Nguyen – Reuters – June 29, 2023