Vietnam recorded an acceleration in economic growth in Q2, fuelled by the services sector, despite a trade slump that could indicate a future slowdown, say analysts.

The central bank has slashed policy rates four times in 2023 so far and a cut in VAT has also been extended, within efforts to bolster the economy amid decelerating global demand.

Between April and June, Vietnam’s GDP grew 4.14% compared to the year before, faster than the 3.28% growth recorded in Q1, according to a report by the General Statistics Office (GSO). Q1 growth was downwardly revised from 3.32%.

In addition, the services sector grew 6.11% in Q2 from the previous year, whilst the agricultural sector expanded 3.25% and manufacturing and construction edged up 2.50%, the GSO added.

However, exports in Q2 declined 14.2% from the year before as a result of weak global demand, and imports decreased 22.3%, Reuters reports.

According to analysts, the sharp fall in imports could signal a future slowdown in industrial production as businesses procure less equipment and raw materials.

Furthermore, Capital Economics downwardly revised its forecast for Vietnam’s GDP growth from 5.0% to 4.5% for this year.

“With the external environment likely to remain unfavourable in the second half of the year, we expect the economy to struggle in the coming quarters,” Capital Economics stated.

The central bank will likely reduce policy rates further, by 100 basis points by the end of the year, it went on to say.

The country has set a GDP growth target of 6.5% for 2023, a slowdown from the 8.02% growth last year.

The General Statistics Office added that industrial output in the first six months of the year declined 1.2% from the previous year. Retail sales of goods and services between January and June increased 10.9%, whilst average consumer prices over the six months rose 3.29%.