HANOI (AFP) - Vietnam's economic growth slowed in the first quarter of the year, the authorities said on Wednesday, warning of an "extremely challenging" outlook for the communist country.

Gross domestic product (GDP) grew by 4.89 per cent in the three months to March from a year earlier, according to the General Statistics Office, compared with an expansion of 5.44 per cent in the fourth quarter of 2012.

Corporate difficulties and high interest rates were among the factors contributing to the weak economic climate, the office said.

"The situation shows that the economy in the second quarter and the whole of 2013 will be extremely challenging," it added.

The figures came two days after the country's central bank announced it was cutting its benchmark interest rates for the seventh time in little more than a year in an effort to boost struggling businesses.

"Bad debts of enterprises and high inventories are hampering national economic recovery efforts. This matter cannot be solved overnight," central bank official Pham Xuan Hoe was quoted as saying by state media.

In 2011, the country repeatedly raised interest rates to prevent the economy from overheating and to rein in double-digit inflation.

As the economy cooled last year, authorities resumed monetary stimulus efforts.

In March, Vietnamese inflation came in at its slowest rate in six months, with a rise in consumer prices of 6.64 per cent year-on-year.

Vietnam's GDP grew 5.03 per cent in 2012, the weakest pace in 13 years, according to government figures. Authorities aim to achieve 5.5-per cent growth for 2013.

The target remains "within reach," Mr Vu Dinh Anh, deputy director of the state-backed Institute of Economy and Finance, told AFP.

"But the key issue is we need to change the economic growth model towards the trend of more in depth and sustainability," he added.

Authorities are dealing with growing worries about bank debts, falling foreign direct investment and a string of financial scandals among state-owned firms such as shipbuilder Vinashin.

There are signs of rising public dissatisfaction over the state of the economy, including a growing chorus of online criticism.

In October, the communist party as well as Prime Minister Nguyen Tan Dung admitted to mistakes in their economic stewardship.