Economic challenges forecast to linger in Vietnam

Vietnam’s economy is likely to face more difficulties in the second quarter amid prolonged global headwinds and after slow growth of 3.32% in the first quarter, the Ministry of Planning and Investment (MPI) said.

At the cabinet’s monthly meeting on Monday, the MPI proposed the government promptly work out measures to reduce taxes and lending interest rates to stir growth.

The ministry forecast that economic challenges would drag on in Q2 due to complicated and unpredictable factors. "As a widely open economy, Vietnam has to face the same challenges as the rest of the world."

Manufacturing, exports, and FDI attraction are all being affected as import orders are on the decline together with prices.

The MPI report said many enterprises in Vietnam started to see a lack of orders in the last quarter of 2022, therefore running at 35-50% of their production capacity. For existing orders, buyers are asking for delivery delays. This has led to Vietnamese producers having to downsize their workforces, saying that these difficulties are likely to last until the end of Q2

The Vietnamese economy continues to face a credit crunch as lending rates remain high while many enterprises are experiencing cash flow issues.

The State Bank of Vietnam cut its policy interest rates by 0.5 percentage points from Monday, the second cut within one month, to support growth amid prolonged global economic headwinds.

Chairing the cabinet meeting, Prime Minister Pham Minh Chinh asked leaders of ministries, sectors, and localities nationwide to work harder and optimize all resources for development.

He said the credit crunch is still hindering businesses, including the ailing property market and the corporate bond market.

Vietnam posted economic growth of 3.32% year-on-year in the first quarter. Industrial production shrank by 0.82% from a year earlier, but total domestic retail sales of goods and services rose 13.9% to more than VND1.51 trillion ($64 billion).

The country's manufacturing industry took a step back in March after February’s recovery as output and new orders have fallen down, S&P Global said on Monday.

S&P Global’s latest report shows Vietnam’s manufacturing PMI score of 47.7 in March, down from 51.2 in February. PMI stands for the global firm’s Purchasing Managers' Index, and the boom-or-bust line of 50 separates expansion from contraction.

Consumer prices in March fell 0.23% from February. Average consumer prices in the three-month period rose 4.18% from a year earlier.