Mr. Glenn Maguire, ANZ Chief Economist, South Asia, ASEAN & Pacific, spoke with VET about consumption trends in Vietnam now and in the future.
■ What trends have you noticed since launching the Consumer Confidence Index (CCI) for Vietnam last year?
The CCI for Vietnam started in January 2014 and the CCI in 2015 has markedly improved upon the numbers posted in 2014. In the first ten months of the year it averaged 139.1 versus 132.3 over the same period of 2014. The only time it dipped below 135 was in August, reflecting the unexpected devaluation of the Vietnam Dong (VND).
■ The CCI has been conducted not only in Vietnam but also in other countries. What are the characteristics of Vietnamese consumers in saving and spending compared with other countries and regions?
Among the ten economies in our sample, Vietnam is one of the four (joining Singapore, Hong Kong, and South Korea) that have shown an improvement in consumer confidence over the last 12 months. Except for the one-off dip in sentiment in August, the survey suggests that consumers in Vietnam broadly believe that the economic and financial situation right now is better than a year ago.
■ At the recent press conference in Hanoi you seemed very optimistic about Vietnam’s economic situation. Do you think consumers will spend more in the years to come?
The broadening improvement in domestic demand should support household consumption in the medium term. The prolonged low inflation environment should now enable households to start adjusting consumption patterns reflecting low oil prices. This should now start to free up incomes to consume other goods.
Credit growth has also been picking up since the start of the year, suggesting that local firms are now better positioned to access credit. Meanwhile, the persistent inflow of foreign direct investment (FDI) should still generate more jobs in the manufacturing sector, helping to increase local incomes.
■ What products will Vietnamese consumers spend more on and what spending might be tightened?
Given that oil prices have remained low and are widely expected to be range bound over the medium term, sales of other goods should now start to benefit from this dynamic. The survey results also suggest that in 2015 more consumers in Vietnam think that it is a good time to purchase major household items compared to 2014.
■ What do you think of Vietnam’s GDP growth rate and how it impacts on earnings?
With headline GDP growth having averaged over 6.5 per cent since 2000 and average monthly earnings having grown by nearly 10 per cent per annum in recent years, aggregate income formation in Vietnam is very high. The broadest measure of income within the economy is GDP per capita, and this has recorded average growth since 1990 of nearly 15 per cent. This is the fastest growth rate of any economy within Asia, including China, though we note the distribution of that income growth has been more even in Vietnam than it has in China and in other fast-growth converging economies. The evenness of income growth is an important pre-determinant of social stability and middle class formation.
The combination of high levels of growth and firm increases in average monthly earnings has seen Vietnam become home to the fastest-growing “consuming class” in the region. Between 2010 and 2020 the consumer class is likely to more than triple, from 10 million to 32 million. Over the decade from 2020-30 we would expect it to double again, from 32 million to 66 million.
With Vietnam’s population likely to rise to 100 million by 2030, around two-thirds of the population will be middle class by 2030. In just 15 years Vietnam is likely to display a middle-class similar to that of South Korea and Taiwan today. This will be a remarkable achievement if realized.