Experts upbeat about Vietnam’s consumption outlook
VIETNAM’S private consumption growth will remain strong, supported by improvements in the labour market as youth unemployment falls, minimum wages grow and lower inflation levels prevail.
Finance expert Nguyen Tri Hieu told Viet Nam News that improvements in the country’s labour market would be the key force driving private consumption growth while lower levels of inflation would also boost spending.
According to reports from the General Statistics Office (GSO), labour market data for the second quarter of this year showed a decline in youth urban unemployment to 9.8 per cent from 10.6 per cent in the first quarter while overall urban unemployment remained stable at 3.1 per cent.
Vietnam’s unemployment rate is forecast low, at 3.4 per cent of the total labour force this year for all demographic groups, remaining constant from last year. This level is projected to be retained over medium terms to 2023.
The continued structural shift in manufacturing facilities from China to Vietnam, which is being expedited by uncertainty from the Sino-US trade war and the signing of the EU-Vietnam Free Trade Agreement on June 30 this year, has also provided a boost to the Vietnamese economy and improves the employment outlook.
Besides, further underpinning the positive consumer outlook is the fact that minimum wage growth continues to increase, albeit at a slower rate.
After a growth of 7.3 per cent and 6.5 per cent recorded in 2017 and last year respectively, the National Wage Council has continually increased the minimum wage by average of 5.3 per cent this year.
This year, minimum monthly wages range from 2.92 million dong ($125) to 4.2 million dong, compared with 2.8 million and 4.0 million dong last year.
“Consumption of local people, especially the young, has been increasing significantly, given by the rising incomes and enhanced living standards,” Hieu said.
According to Euromonitor, per capita disposable income was at more than 40 million dong last year and expects an average growth of 5.9 per cent annually in the 2019-2030 period, leading to corresponding growth of consumer spending.
The middle-income class is also increasing rapidly and it was forecast that 49 per cent of households will have an annual disposable income of between $5,000 and $15,000, up from 33.8 per cent last year.
Meanwhile, the country’s inflationary pressures remain under control, providing further stimulus for spending.
GSO data showed that the country’s inflation cooled to 2.57 per cent last month, down from 3.52 per cent in August last year. The rate was the lowest rise for the past three years.
This year, inflation is projected to average at 2.9 per cent, buoyed by weak transport inflation due to a drop in average oil prices in the year.
The factors highlighted above are already having a positive impact on retail sales. In the GSO’s data release, retail sales grew by 11.6 per cent in July, up from 11.1 per cent in July last year. Indicative of an improving outlook over this year is the broader uptick in retail sales, with growth of 11.9 per cent average annually over the first seven months of this year, up from the 10.2 per cent over the same period last year.
Analysts from Fitch Solutions Macro Research recently also forecast although slightly cooling this year, private consumption growth in Vietnam would remain robust, expanding by 6.5 per cent this year and picking up further to 6.8 per cent next year.
“Retail sales in Vietnam have recorded double-digit growth rates and we expect this to hold over 2019. We highlight Vietnam as one of the most promising consumer markets in Asia Pacific, along with Indonesia, the Philippines, India and China,” Fitch analysts noted.
According to Hieu, local consumption will continually support Vietnam’s economic growth, especially when the global market slows and is becoming volatile.
“Robust domestic consumption will be an important driver for the country’s growth and help reduce dependence on exports,” Hieu said.