Vietnam consumer spending recovery getting underway in 2021

The growth rate of Vietnam’s household spending in 2021 is forecast at 7% year-on-year, marking a a strengthening on the 0.8% year-on-year growth in household spending estimated last year, according to Fitch Solutions, a subsidiary of Fitch Group.

“It also indicates a return to Vietnam’s previous consumer spending growth trajectory, which averaged an annual increase of 6.6% over the 2015-2019 period,” stated Fitch Solutions in a note.

According to Fitch Solutions, all of the main consumer spending categories (except food and non-alcoholic drinks spending and health spending) are expected to post double digits year-on-year nominal growth in 2021.

Food and non-alcoholic drink spending were prioritized in household budgets over 2020, and so growth in spending on these items, while remaining positive, will be slightly lower than that of 2020, stated Fitch Solutions.

Fitch Solutions forecast food and non-alcoholic drink spending to grow by 6.6% year-on-year in 2021, decelerating from the estimated 12.6% year-on-year growth in 2020.

Meanwhile, spending within other consumer categories is expected to see slower growth compared to 2020, as households cut spending on non-essential items and retail and business operations in these categories were curtailed due to lockdown closures. As such, these categories will grow from a relatively lower base over 2021 and thus will report stronger growth over the year.

A recovery in consumer spending in Vietnam this year is in line with the agency’s forecast that the country’s economy will grow by a real rate of 8.6% year-on-year over 2021, a strengthening on the estimated 2.9% year-on-year growth in 2020.

Fitch Solutions suggested government stimulus measures enabled some protection to Vietnamese consumers and the nation’s economy in 2020. Although the unemployment average did tick up slightly, to an estimated 2.5% in 2020 from an estimated 2.2% in 2019, “this figure would have been considerably higher, if the government had  intervened to offer financial support to businesses and households in 2020,” Fitch Solutions stressed.

Fitch Solutions projected unemployment levels to revert to pre-Covid-19 levels, decreasing to an average of 2.2% for 2021. While inflation is projected to slightly tick up by 3.5% year-on-year in 2021, from an estimated 3.2% in 2020, it did not expect this level of inflationary pressure to derail the consumer recovery outlook.

Covid-19 restriction poses no significant threat to consumer spending

On January 15, Deputy Prime Minister Vu Duc Dam announced that foreigners coming from countries/territories that have reported the new Covid-19 variant must be quarantined for more than 14 days. While Fitch Solutions expected stricter measures to curb the Covid-19 infections, the agency said it does not believe that these restrictions will pose a significant threat to consumer spending, when the whole of 2021 is taken into account.

In January 2021, Vietnam retail sales recorded its highest year-on-year growth of 6.4% since the start of the Covid-19 pandemic in January 2020.

This growth trajectory is largely driven by the country's effective control of the Covid-19 virus in the second half of last year, and also highlights the recovery in retail sales after government restrictions and closures led to a contraction in retail sales in the previous six-month period, noted Fitch Solutions.

Fitch Solutions said strong growth in retail sales in the June-December period of 2020 was due to retailers and shopping malls offering sales promotions to stimulate the domestic consumption.

The State Bank of Vietnam (SBV), the country's central bank, also reduced policy rates by 0.25-1% in October 2020, further encouraging consumer spending.