The nation's gross domestic product (GDP) is forecast to grow by 4.8 percent during the second quarter of the year, lower than the previous quarter.

According to a recent report by the National Centre for Socio-Economic Information and Forecast (NCEIF), many economic challenges highlighted during the first quarter would continue to hinder an economic recovery in the coming time.

Prospects for a global economic recovery were still limited while the domestic economy was still grappling with difficulties relating to bad debts and a lack of capital for businesses along with falling purchasing power.

Industrial production was low and high inventories continued to pose a headache, with the food sector seeing a growth rate of only 3.1 percent in comparison with 11.8 percent during the same period last year.

The stagnant real estate market also had a negative impact on production of raw materials, steel and cement, with the mining sector also seeing slow growth of 3.8 percent.

Export growth relied largely on foreign investment with the FDI sector running a trade surplus of nearly 1.31 billion USD, a figure that helped improve the country's overall trade balance.

Statistics showed that the FDI sector's exports were valued at 19.2 billion USD, accounting for more than 60 percent of the country's total export turnover and representing a rise of 25.6 percent over the same period last year. The sector's imports accounted for 55 percent of total import turnover, at 16.1 billion USD.

According to NCEIF, foreign direct investment inflow was decreasing.

Although the first quarter of this year saw inflow of FDI capital account for 26.16 percent of total capital of all kinds into the country, a rise of 1.37 percent over the same period last year, it decreased by 6.33 and 2.7 percent in comparison with the first quarter of 2010 and 2011, respectively.

The country's budget deficit was at about 35.6 trillion VND in the first quarter due to low revenues. Statistics showed that as of January 15, total State revenue was estimated at 16.7 percent of targeted revenue for the full year, a record low since 2008.

Loan interest rates remained high (at an average of 14 percent) with low credit growth, and a high rate of non-performing debts (estimated at 6 percent), especially in the real estate sector.

These statistics reflected the economy's low capital absorbency, creating the paradox of an abundance of cash despite enterprises' great need for capital, and playing a major role in the low economic growth rate during the first quarter, according to the NCEIF.

The centre said in its report that while many Government policies had been issued in a timely manner, many were not practical or had not been effectively implemented.

The implementation of Government Resolution No 01/NQ-CP and Resolution 02/NQ-CP on tackling production difficulties and resolving bad debts held by businesses remained slow, hindering economic recovery.

The centre called for implementation of these policies to be sped up and their practicality ensured to stabilise the economy and recover production, adding that inappropriate resolutions should be amended or eliminated to enhance efficiency.

Problems related to bad debts and credit needed to be tackled while measures to boost purchasing power had to be taken to help ensure capital sources for enterprises.

"Falling consumption is one of the causes for the stagnant economy, creating difficulties for enterprises. Measures to accelerate demand, such as price cuts, job creation and salary increases, are necessary for the economy to recover," the report said.

The centre forecast a GDP growth rate of 4.8 percent for the second quarter of the year while the consumer price index (CPI) would rise at a rate of 3.2 percent over December last year.-VNA