Vietnam’s GDP growth in the first quarter declined to 4 percent from the previous quarter's growth of 6.1 percent, according to data released by the government.

Though the economy is still growing, the pace of the growth is slower than the same period of the previous years, said Cao Viet Sinh, Deputy Minister of Planning and Investment.

The weak first quarter figure was the lowest rate of growth since the first quarter of 2009 which saw a rise of 3.1 percent after being seriously affected by the global financial crisis. In Q1 2011 and 2010, the country had seen a growth of 5.57 percent and 5.84 percent, respectively, according to the government data.

For Q1 this year, industrial production has declined to 4.1 percent from 9.3 percent in the same quarter last year. 

The economy might face a difficult year in 2012 due to a combination of high inflation, problems in the banking sector and weakening export demand, says Capital Economics.

On a positive note, the inflation in March reduced slightly to an annual rate of 14.15 percent from 16.44 percent in February, according to government data. For the first quarter, the exports saw a rise of 23.6 percent to $24.5 billion. The fact that exports continue to be strong, in spite of the concerns regarding weak global economic condition, is certainly healthy for Vietnam.

Although a further ease in inflation is likely over the rest of the year, it will continue to weaken consumers’ purchasing power, causing retail sales to suffer, points out Gareth Leather, Asia Economist at Capital Economics. Moreover, further rate cuts are likely following the 100 basis points reduction in the refinancing rate in March.

In a bid to improve the health of the banks, the government has ordered some of the most vulnerable banks to cut lending growth this year, says Capital Economics. The government has announced plans to inject more liquidity into the system as it looks to avoid a liquidity crunch.