Rising private consumption to be major contributor to GDP growth

As predicted by the World Bank (WB), from now to 2018, Vietnam’s private consumption would continue rising and making major contributions to GDP growth. The factor which helps boost consumption is the decrease in prices of food and metal in the world market.

A report by the State Bank of Vietnam (SBV) shows that 35-40 percent of the credit has been poured into real estate, securities and consumer sectors in the first half of the year. These are also sectors which have seen the highest credit growth rate compared with the same period (27.5 percent) last year.

Meanwhile, a report of BCG, a consultancy firm, showed optimism of urban consumers and the rise of the middle class and upper classes in the society, estimated to reach 33 million people by 2020, which would help create a consumption boom.

Therefore, economists have suggested that Vietnam should reassess the role of the consumer economy and consider consumers as the springboard for economic growth in the future.

However, according to Nguyen Xuan Thanh from Fulbright University, the consumption increase would go together with an import increase. Vietnam not only imports machine and equipment as input materials for domestic production, but it also imports consumer goods, rice, meat, and fruit.

As predicted by the World Bank (WB), from now to 2018, Vietnam’s private consumption would continue rising and making major contributions to GDP growth. The factor which helps boost consumption is the decrease in prices of food and metal in the world market.

Official reports show that Vietnam has been importing more food from South Korea, Japan, and Thailand. This is partly because Vietnamese goods still cannot satisfy consumers and remain uncompetitive in both the Vietnamese and the world markets. “Vietnam will only obtain sustainable consumption growth if it can improve competitiveness, and upgrade the institutional quality and labour productivity,” Thanh said.

According to Luong Quang Thi, CEO of ABA Corp, to improve productivity, Vietnam needs to gather its strength on the works it is best at, while there is no need to undertake all works. Jonathan Dunn, Chief Representative of IMF in Vietnam, said that a low productivity economy would hinder economic development through consumption. Improving productivity requires time and a series of comprehensive development measures. Therefore, according to Jonathan Dunn, there is another way to stimulate demand – stabilizing the macroeconomy.

In addition, the state should create the most favourable conditions and prioritize to allocate capital to product research and development, thus encouraging consumption and private spending. According to HSBC, the consumer trends in the coming years will focus on the middle class, especially in emerging markets.