|Customers buy fruit and vegetables at Saigon Coop mart supermarket on Nguyen Trai Street, Hanoi. Vietnam is one of the most promising consumer markets in Asia Paciﬁc. — VNS Photo Truong Vi
Finance expert Nguyen Tri Hieu told Vietnam 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 in 2019 for all demographic groups, remaining constant from 2018. 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 US-China 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 2018 respectively, the National Wage Council has continually increased the minimum wage by average of 5.3 per cent in 2019. In 2019, minimum wages range from VND2.92 million (US$125) to VND4.2 million, compared with VND2.8 million and VND4 million of 2018.
“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 VND40 million last year and expects an average growth of 5.9 per cent annually in the 2019-30 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 in 2018.
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 in August 2019, down from 3.52 per cent in August 2018. The rate was the lowest rise for the past three years.
In 2019, 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 2019, up from 11.1 per cent in July 2018. Indicative of an improving outlook over 2019 is the broader uptick in retail sales, with growth of 11.9 per cent average annually over the ﬁrst seven months of 2019, up from the 10.2 per cent over the same period in 2018.
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 in 2019 and picking up further to 6.8 per cent in 2020.
“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.