(Bloomberg) -- Vietnam’s growth decelerated more than expected this quarter as exports and construction shrank, reflecting the risks that global and domestic challenges pose to one of the region’s fastest-growing economies.

Gross domestic product rose 3.32% in the three months to March from a year earlier, slowing from 5.92% in the last quarter of 2022, according to estimates released by the General Statistics Office on Wednesday. That compares with a 4.8% median forecast in a Bloomberg survey and below all seven expectations.

Overseas sales contracted 14.8% in March from a year earlier, contributing to the 11.9% drop in exports this quarter, said the GSO. Construction and industrial sector fell 0.82% in the first quarter while manufacturing dropped 0.37%, according to Nguyen Thi Huong, head of the general statistics office, said at a briefing in Hanoi.

Vietnam’s trade-reliant economy is taking a hit as tighter monetary policies globally dampen demand for goods, mirroring a trend of sagging sales in Asian export powerhouses, including South Korea and Taiwan, while China’s reopening lift has yet to be fully felt. At the same time, the impact of government crackdowns reverberating in Vietnam, including the property sector, is already showing strains in an economy that rarely posts below 5% growth pre-pandemic.

“Vietnam GDP is taking a brunt from the downturn of the global trade cycle and its export exposure is close to 100% of GDP, which has dragged down manufacturing,” said Trinh Nguyen, an economist at Natixis SA in Hong Kong. 

Textiles and footwear saw orders slump by 70% to 80% in the first quarter, said Tran Thi Thu, deputy head of general account statistics at the GSO.

“But it isn’t just manufacturing, we got weakness in construction due to the fallout of the real estate tightening,” Trinh said. “Moreover, lack of clarity on policy direction is also taking a toll on domestic investment.”

To limit the damage, Vietnam’s central bank this month cut a key interest rate to help lower cost of funds for banks, and in turn reduce lending rates. The move was supported by inflation this month that was the slowest since August.

Vietnam targets 2023 exports growth of about 6%, compared to 10.5% last year, according to a government statement last month, citing deputy trade minister Do Thang Hai.

Other key details from the release:

  • Imports shrank 11.1% in March from a year earlier
  • Consumer prices rose 3.35% in March from a year earlier, the government aims to cap inflation at 4.5% this year
  • Pledged foreign direct investment for the first quarter was down 38.8% year-on-year, while disbursed FDI dropped 2.2%

--With assistance from John Boudreau, Nguyen Xuan Quynh, Mai Ngoc Chau, Cecilia Yap and Tomoko Sato.

(Updates with sectoral details in third paragraph, analyst comment from fifth paragraph.)

©2023 Bloomberg L.P.