Vietnam’s GDP growth of 3.3 per cent in the first three months of 2023 has taken economists by surprise. The figure is far below forecasts and marks a reversal for what was till recently Asia’s fastest-growing economy. While a drop in exports weighed on growth, a simultaneous dip in imports, which are used mainly to make products for export, indicates producers are not optimistic about a nearterm recovery. The sharp factory downturn is worrying economists and has led to the trimming of their full-year forecasts, citing risks such as stress in the domestic property sector and fears of a global recession hitting factory orders. The Vietnamese economy is important to track because it is seen as a bellwether for the health of the China-centric Indo-Pacific supply chain. The fear is the contagion could spread. As China relaxed its zero-Covid restrictions, businesses expected a jump in demand that would give the economy a shot in the arm; instead, there is a visible downtick in orders. A report in Nikkei Asia quotes a note by Oxford Economics’ Theng Theng Tan last week which iterated: “We think the exports slump is not over yet, as global demand continues to weaken through the year. The real estate sector is also facing severe domestic headwinds from a credit crunch and the ongoing anti-corruption campaign.” The campaign stunned investors in the first quarter and led to the resignation of Vietnam’s president, who took responsibility for scandals during his term. The wide-ranging crackdown has included arrests of state officials as well as executives in the property and banking industries. Tan sees more weakness to come as the campaign “deterred investors and caused disruptions in investment approvals.”

Oxford Economics forecasts 4.2 per cent GDP growth for Vietnam in 2023, down by nearly half from the 8 per cent expansion last year. Import declines are an especially revealing metric because Vietnam’s imports feed mainly into exports. “This could signal that manufacturers remain pessimistic about the external demand outlook, given their caution about purchasing inputs,” Maybank economists Brian Lee Shun Rong and Chua Hak Bin wrote in an analysis, noting that computer and electrical products led the 15 per cent year-on-year import decline last quarter. At the same time, exports dropped 12 per cent, a decline reflected in all leading product categories: Phones and other electronics, clothes, shoes, and wood products. China is the primary source of imports as well as the top buyer of Vietnamese exports after the USA. But Beijing’s end to curbs has not given the expected fillip to exports. Shipments to China shrank 5.3 per cent in January and February when compared to the first two months of 2022, according to the latest customs data. Exports to Russia suffered an even deeper cut, falling 60 per cent in January and February compared with the year earlier. This shows that the Sino-Russian alliance will struggle to carry heft unless both countries’ economies show a marked improvement.