Vietnam’s GDP growth slowed to 5.66% in Q1 on weak phone, car output

Side effects of government’s crackdown on corruption also hit businesses.

Vietnam’s economy grew 5.66% in the January-March quarter from a year earlier, down from 6.7% the previous quarter, as productions of smartphones and automobiles dropped, official data showed Friday.

Exports of goods increased 17% in dollar terms in the first quarter, recovering from a 4.4% decline in the full year of 2023, according to the General Statistics Office.

However, the industrial and construction sectors’ overall growth slowed to 6.28%, compared to 7.35% in the prior quarter, with production of mobile phones and cars falling 13.3% and 11.3%, respectively. The service sector’s growth also slowed to 6.12%, compared to 7.29% in the prior quarter, the agency said.

Vietnam’s burgeoning supply chain is attracting producers of chips, solar panels and other companies seeking shelter from the China-U.S. trade war, making it one of Asia’s fastest-growing and export-reliant economies.

The factory hub for Samsung and Adidas is targeting growth of 6% to 6.5% in gross domestic product this year, similar to a goal it missed last year, when GDP increased 5%.

But businesses are complaining of anemic foreign demand and of the difficulty of getting loans and licenses as the government’s corruption crackdown makes officials afraid to make mistakes.

The corruption purge delivered two stunning developments this month, when President Vo Van Thuong resigned for unspecified violations and prosecutors recommended the death penalty for property magnate Truong My Lan, who is accused of embezzling a record $12.5 billion.

“Many domestic firms are still struggling to recover from the pandemic as well as other problems that have disrupted their businesses over the past two years, including the credit crunch, the tightening of the corporate bond market or the slowdown in the real estate sector,” Le Hong Hiep, coordinator of the ISEAS-Yusof Ishak Institute’s Vietnam studies program, told Nikkei Asia.

In the first quarter, 59,900 companies began or resumed operations, a jump of 5.1% year on year, but the number of business shutdowns rose 22.8%, the statistics office said.

“Many businesses report that access to credit is still difficult and lending interest rates are still high,” the government said in a recent post on its website.

Efforts to root out corruption have included arrests of multiple executives, some for alleged bond fraud in the real estate and banking industries. That scared off investors, causing the bond market to seize up and making it hard for borrowers to secure new financing.

Surveys showed 22.1% of manufacturers felt the first quarter improved from the prior period, the statistics agency said, “but it is expected that in the second quarter of 2024, 45.4% of businesses assess that the trend will be better.”

By Lien Hoang – Nikkei Asia – March 29, 2024