Signs of weakness are widespread across Vietnam's economy, including sharp drops in exports due to global demand, weakening imports reflecting a contraction in factory output, and a tumble in new bank lending.
HANOI, June 1 (Xinhua) -- Vietnam's weak economic data in the first five months of the year has built up the pressure on policymakers to deliver stimulus measures, including monetary easing.
Signs of weakness are widespread across the economy as exports dropped sharply on sagging global demand, weakening imports indicated a contraction in factory output and new bank lending tumbled.
WEAK EXPORTS STALL FACTORY ACTIVITY
For Vietnam, the sharp decline in demand for its goods abroad has removed a key prop for growth, at a time when the export-driven economy has yet to fully recover from the COVID-19 pandemic and one of the Southeast Asian country's top industries, the real estate sector, plunged into turmoil.
As consumers and businesses around the world cut back spending in response to central banks' aggressive moves to tame inflation, Vietnam's exports have been hit hard.
Exports in May fell at an annual rate of 5.3 percent, down from the double-digit growth pace of 22.1 percent that Vietnam posted last August, according to the General Statistics Office (GSO).
Vietnam's total exports in the January-May period dwindled 11.6 percent from a year ago to 136.17 billion U.S. dollars, extending the downward trend seen over the past 9 months, statistics data showed.
As sluggish global demand has crimped exports, the GSO said Vietnam's exports to the U.S., its largest market, narrowed 19.5 percent to 37.2 billion dollars in the first five months compared with a year earlier, while sales to the European Union fell 6.5 percent.
The data revealed steep falls in exports of products including furniture, clothing, footwear and smartphones, which all are the biggest foreign currency earners for the country.
Vietnam's imports dropped 17.9 percent in the January-May period from a year earlier, underscoring a continued contraction in manufacturing activity as factories cut their purchases of raw materials and equipment for production.
About 94 percent of Vietnam's imports are spent on raw materials and equipment for production, which slumped 18.2 percent in the first five month from a year ago, the GSO noted.
Manufacturing activity dipped to 46.7 in April from March reading at 47.7, well below the 50.0 threshold that separates growth from contraction, the S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) showed.
"The biggest problem now is to secure new orders so that we would revive faltering exports," said Tran Ngoc Bau, chief executive of data provider WiGroup.
"However, the global manufacturing PMI still remains below the neutral 50.0 mark, suggesting global pullbacks in both manufacturing and consumption," he added.
He expected Vietnam's exports to fall further in the next one or two quarters.
"During the COVID-19 pandemic, manufacturing was hit hard by supply chain disruptions," said Phan Le Thanh Long, founder of the Vietnam Wealth Advisors. "But now, the current loss of momentum in manufacturing is due to the effect of the drop-off in demand."
"As the global economy slides closer to recession, Vietnam is going to be in the crosshairs," said Nguyen Minh Tuan, co-founder and chief executive at AFA Capital Vietnam. "It's hard to see the manufacturing sector not experience some sort of a downturn."
VIETNAM BUCKS GLOBAL TREND OF MONETARY TIGHTENING
Vietnam, among one of the few countries, has tried to buck the global trend so far this year, deploying monetary and fiscal easing in a bid to support growth.
The State Bank of Vietnam has cut its policy interest rates three times so far this year to support businesses get through the tough time and boost domestic demand further.
However, more monetary easing would have limited effect as long as domestic and external demand remain weak, said WiGroup chief executive.
Although most central banks were done or almost done with raising interest rates, there is a lag between changes to monetary policy and its effect on economic activity.
"It would take Vietnam between three and six months for its easing policy to have effect on manufacturing," he said.
Much weaker-than-expected credit growth underlines the difficulties policymakers are facing stimulating growth.
According to the central bank, as of April 20, the credit growth in the banking system was up 2.57 percent from the end of last year, about a third of the growth of 6.42 percent in the same period a year ago.
The central bank has previously said it was targeting 14-15 percent credit growth for this year.
Banks have lowered their expectations for loan demand, saying that the total lending is expected to grow 4 percent in the second quarter and expand by 13.1 percent for the year, according to a survey by the central bank.
"A continued credit crunch in the next six months could strangle domestic consumption and drive more bankruptcies among private companies and spark a domino effect of defaults at larger firms," WiGroup chief executive added.
He cited the fact that the year-on-year growth rate of money supply of 4.6 percent in February was the lowest in the past 30 years.
Vietnam's economic growth traditionally relies heavily on increased credit. The central bank has urged commercial banks to funnel new loans into export-oriented manufacturing, agriculture and small- and medium-sized businesses.
Experts said liquidity crunch has eased recently, but banks still find it hard to boost lending to businesses and individuals on worries about an economic slowdown and continued sluggishness in the property sector.
"We expect liquidity to recover gradually over the next few quarters as macro headwinds subside and domestic sentiment recovers," Fitch Ratings said in a report.
REAL ESTATE - A MAJOR DRAG ON ECONOMY
The property market contributes about 15 percent of Vietnam's GDP and has been a drag on growth since last year amid a lack of mortgage availability, high interest rates and a stagnant corporate bond market, according to the Vietnam National Real Estate Association.
The sluggishness in the property sector, with many developers grappling with a debt crisis, has kept both banks and home buyers reluctant to engage in transactions.
The absorption rate of in real estate in the first quarter was below 20 percent of the supply, according to data compiled by WiGroup.
Meanwhile, the supply of unfurnished apartment in the capital of Hanoi and southern business hub Ho Chi Minh City tumbled between 25 and 27 percent in the first three months from a year ago due to shrinking investments by real estate firms.
In the January-March period, the number of newly-licensed housing projects plummeted 56 percent, existing development projects plunged 43 percent and completed property projects fell 36 percent from a year ago, according to the housing and real estate market management.
"Real estate companies with capital pressure are moving cautiously, while financially-capable developers are holding back investments amid stagnant market conditions," said Phan Le Thanh Long, founder of the Vietnam Wealth Advisors.
Vietnam recorded a 63-percent fall in the number of new companies in the real estate sector in the first quarter from a year earlier, while permanent business closures in the sector rose 30 percent and the number of companies temporarily shut down increased 61 percent in the same period, according to the Ministry of Construction.
"The well-anticipated new property law, which could be approved at the latest by middle 2024, would give a boost to the market," Long said.
Vietnam's economy in the first quarter grew 3.32 percent, the second lowest rate since 2011, amid a global slowdown weighing on exports, crisis in the property sector and shortages of bank credit hampering households and businesses, according to the GSO.
Following the worrying signs of a slowing growth, the head of economic committee of Vietnam's National Assembly Vu Hong Thanh said at the opening session of the parliament last week that the official earlier goal of expanding 6.5 percent this year has proven to be "challenging".