Vietnam's economy expanded at less than a 5 percent pace for the second straight quarter, signaling growth may fall short of the government's target this year.
Gross domestic product rose 4.66 percent in the three months ending June from a year earlier, after climbing 4 percent in the first quarter, the General Statistics Office in Hanoi said on Friday.
Vietnam's economy has struggled with stagnant bank lending and high inflation that crimped corporate growth and domestic demand. With Europe's debt crisis and China's economic slowdown also posing risks, the government reduced its target for gross domestic product of up to 6.5 percent this year to 6 percent, and Deputy Minister of Planning and Investment Cao Viet Sinh said this month full-year expansion may be as low as 5.2 percent.
"If you look at Vietnam's GDP numbers on a quarterly basis growth always accelerates throughout the year, but it's not clear yet whether this second-quarter rebound is any stronger than what we've seen in previous years," said Tai Hui, the Singapore-based head of Southeast Asia economics at Standard Chartered Plc.
"The rate cuts we've seen recently will start to move through the economy in the second half, but there are a number of moving parts to watch for," said Hui. "Banks have been very careful, so whether the rate cuts will cause them to lend more will be crucial."
The benchmark VN Index rose 0.3 percent as of 10:26 a.m. local time, while the Vietnamese dong was little changed.
The State Bank of Vietnam has cut its key interest rates for four straight months as it focused on reviving growth amid slowing inflation. Consumer prices rose 6.9 percent this month, compared with a rate of 23.02 percent in August 2011.
The Southeast Asian nation has entered a period of sluggish growth, the World Bank said in a report this month that cited the slow pace of structural reforms and inefficiencies in state- owned companies, banks and public investments.
"The worst is behind us, but there's still a lot of work to do to regain people's confidence," said Brett Ashton, the Ho Chi Minh City-based managing director for the Vietnam unit of London-based property company Savills Plc. "When you have 23 percent inflation, people get worried and stop spending, and retail sales and the property market suffer."
The government will accelerate state spending and boost bank lending to bolster the economy, Deputy Prime Minister Nguyen Xuan Phuc told the National Assembly on June 15. It also plans to cut some corporate taxes, defer sales tax payments and lower lending rates for some companies, he said.
"We are encouraged that the government is showing itself willing again to provide whatever solutions are necessary to get the economy moving," Kevin Snowball, the Ho Chi Minh City-based chief executive of PXP Vietnam Asset Management, wrote in a note this month, citing the creation of a fund to get non-performing loans off the balance sheets of banks and revive lending.
Vietnamese banks' outstanding loans fell 0.59 percent from the end of 2011 through April, the central bank said on June 21.
The economy expanded 4.38 percent in the first half of the year, down from 5.63 percent a year earlier, according to today's report. Vietnam was hit by many difficulties in 2010 and 2011, and conditions "became even more difficult in the first half of this year," Do Thuc, GSO general director, said in a briefing in Hanoi today.
Industry and construction, which accounted for 40 percent of gross domestic product in the first half of the year, grew 3.81 percent in that period. The sub-category comprising only construction slipped 0.8 percent, the Statistics Office said.
Agriculture, forestry and fisheries, which made up 22 percent of gross domestic product, expanded 2.81 percent in the first half. Services, which made up 38 percent of the economy, grew 5.57 percent in the first half. The number of foreign visitors rose 14 percent in that period.
Emirates, the world's biggest airline by international passenger traffic, began daily flights this month between Dubai and Ho Chi Minh City, and said it will raise capacity on the route in October.