In the challenging economic picture, the service industry is a bright spot with a positive recovery, although not yet truly stable.
Vietnam's economy is still facing difficulties across the board, with April exports down 11.2% year-on-year and imports down 13%. "We have yet to see the light on the trade front," HSBC Bank commented on economic data released by the Ministry of Planning and Investment last month. The industrial production index also reflected a similar situation, falling 14%.
According to Minister of Planning and Investment Nguyen Chi Dung, the economy is still facing many risks, including high global inflation pressure and the trend of continuing monetary tightening in many countries to curb inflation.
However, both the Ministry of Planning and Investment and HSBC banking experts believe that the consumer services and tourism group (one of the pillars of economic growth, contributing nearly 44% in the first quarter) is a bright spot. Retail sales increased by 11.5% compared to the same period last year, reflecting the momentum of domestic consumption.
According to the Ho Chi Minh City Department of Industry and Trade, the total volume of goods imported from wholesale markets for the April 30 holiday increased by 5.7% compared to the same period in 2022. Purchasing power at supermarkets and shopping malls "increased sharply" thanks to people coming to shop and have fun.
Tourism has revived, and related industries such as food and accommodation have also benefited. Vietnam welcomed about 984,000 international visitors last month, bringing the recovery rate to 62% compared to 2019. The result was mainly due to a 70% increase in Chinese visitors.
The five-day holiday attracted more than 300,000 international visitors and 7 million domestic visitors, up 40% over the same period in 2022, according to the General Department of Tourism. Compared to last year's holiday, total revenue from tourists increased by 9%, estimated at VND24,000 billion.
At the National Assembly session opening on May 22, the Law on Entry, Exit, Transit and Residence of Foreigners in Vietnam will be submitted to the National Assembly for discussion and approval in a shortened process. Accordingly, the Government is proposing to increase the duration of e-visas from 30 days to 3 months, valid for single or multiple entries; and issue e-visas to citizens of all countries and territories. The temporary residence period of foreigners entering the country under unilateral visa exemption is also proposed to be increased from 15 to 45 days. This opening direction is considered to be a lever for Vietnam to attract tourism.
People shop at Tops Market Thao Dien supermarket on the afternoon of January 14. Photo: Thanh Tung
How far will service be restored?
On the upside, the rise in commodity prices has slowed. Headline inflation in April fell 0.3% from March, keeping year-on-year inflation below 3%.
However, the recovery of services is not completely solid, with mixed signals of light and dark in consumption. Payment platform Payoo assessed that consumers tend to cut down on unnecessary items, looking for similar options with lower prices for essential products.
In the first quarter, the revenue decrease compared to the fourth quarter of 2022 of supermarkets and convenience stores was 5-10% and of shopping malls - where many fashion and interior stores are concentrated - was 10%. People are also reluctant to buy phones and electronics, with revenue of retail stores selling these items decreasing by 30-50%.
The price war is still going on to stimulate demand, after the statements and comments of the leaders of major retail chains are not optimistic about the electronics and home appliances market. "Too cheap" is the recent advertisement of TV, washing machine and air conditioner discounts of a leading retail chain. Immediately, the rival chain launched the slogan "Cheaper than too cheap".
However, there is still a group of customers with good incomes who are increasing their spending on cars or luxury meals. On the Cho Tot Xe platform, the used car market in the first 4 months of the year unexpectedly regained growth momentum compared to the same period in 2022. The total number of contacts to buy cars increased by 11% and the number of listings increased by 7%.
During the recent April 30 holiday, the demand for car purchases increased by 26% compared to last year's holiday. This is always the time when many people decide to "spend money" on shopping or change their means of transportation. "This is considered a positive signal in the context of many fluctuations in the macro economy," commented the report of Cho Tot Xe.
Payoo said that fine-dining restaurants with spending levels of around VND1 million per person per meal are still growing steadily. The average value of each order in the first quarter increased by 7% compared to the previous quarter.
"These 'rich people' who are willing to spend are the factors that stimulate and maintain the market's operation," commented a Payoo representative. That is a good sign because if everyone saves, recession could be a reality, not a sign.
In the near future, consumption is likely to be strengthened with a plan to reduce value-added tax (VAT) by 2% until the end of 2023. Dr. Pham Thi Thanh Xuan, Ho Chi Minh City University of Economics and Law, said that although the policy was finalized at a time when absorption was not strong enough to maximize potential efficiency, it will still have a significant effect.
"A reduction of 2 percentage points is meaningful because it affects people's real income. Currently, due to high inflation, real income is quite low, making 2 percentage points a lot," Ms. Xuan commented.
Regarding tourism, the recovery rate of Chinese visitors - which accounted for 30% of international visitors to Vietnam before Covid - is now only 25% compared to the same period in 2019. "Although the tourism industry has positive signs, the recovery of the industry is still slow, and not enough to offset the challenges this year," HSBC commented.
And while services are a bright spot in the tunnel, the future of economic growth remains challenging as trade remains weak and credit growth slows.
With a credit growth target of 14-15% and the State Bank cutting its base interest rate twice in March, credit only grew by about 2% in mid-April, half the growth rate in the same period in 2022, reflecting continued concerns over economic difficulties, according to HSBC.
Authorities have recently introduced a series of policy support measures, including a VND120 trillion credit package for social housing, a plan to restructure some loans, and support for the real estate sector - a sector that has faced a liquidity crisis since October 2023. However, HSBC believes that growth is still likely to decline in the first half of this year.
However, the bank expects the service sector to be strongly boosted and the trade wave to shift in the second half of the year, bringing the full-year growth in 2023 to 5.2%.
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