Rising wages will continue to support the country's rapidly growing middle class, further driving the demand for consumer goods and services.

Fitch Solution forecasts real GDP growth of 6.8% y-o-y in 2020 for Vietnam, remaining strong, despite decelerating slightly from the 6.9% y-o-y estimated for 2019.

According to the General Statistics Office of Vietnam (GSO), real GDP growth came in at 7.3% y-o-y in Q319, accelerating from 6.7% y-o-y in Q219. 

Fitch Solution believes that the acceleration in growth was driven by the ongoing influx of companies seeking to relocate from China amid the US-China trade tensions, resulting in the manufacturing sector being a growth outperformer. This bodes well for the country's labour market and wage growth into 2020.

According to Fitch Solution, project private consumption growth in Vietnam was robust, expanding by 7.5% y-o-y in real terms in 2019, accelerating from 7.0% y-o-y in 2018. Looking ahead, it expected private consumption growth to cool slightly to 6.8% y-o-y in 2020, but remain strong.

Improvements in the labour market outlook will be the key force driving private consumption growth, while lower levels of inflation will also boost spending. Fitch Solution highlighted  Vietnam as one of the most promising consumer markets in Asia, along with Indonesia, the Philippines, India and China.

Positive Outlook For Private Consumption Growth

There are increasing reports of a shortage of qualified labour in Vietnam and this has put significant upward pressure on wages. Data from the GSO indicates that average monthly wages increased by 13.0% y-o-y in Q319. Furthermore, on a y-o-y basis from January to September 2019, the average wages of executives have risen by 16.7%, technical workers by 12.2%, and unskilled labourers by 17.4%.

According to Fitch Solution, wages are still low in Vietnam compared to other low-cost manufacturing hubs in the region, at about $290 versus $470 in Thailand and $580 in China’s manufacturing sector, according to data from the respective national statistical offices, but highlight an uptick in wages will aid the development of the country’s middle class and by extension demand for consumer goods.

Wages Low By Regional Standards

Further underpinning our consumer outlook is the fact that, minimum wage growth continues to increase, albeit at a slower rate. Vietnam’s National Wage Council has increased the minimum wage by an average of 5.3% in 2019 (growth of 7.3% and 6.5% was recorded in 2017 and 2018 respectively).

In 2018, minimum wages ranged from VND2.8mn (USD118) to VND4.0mn (USD171). In 2019, minimum wages range from VND2.92mn (USD126) to VND4.2mn (USD180).

Inflationary pressures remain under control, providing further stimulus for spending. According to the latest data from the General Statistics Office of Vietnam, inflation cooled to 2.0% in September 2019, down from the 4.0% in September 2018.

Fitch Solution forecast average inflation of 2.7% in 2019 while it expected to see an uptick to 3.7% in 2020. It expected transport inflation to remain weak over the rest of 2019 due to a drop in average oil prices in the year. By contrast, there is moderate upside pressure for the food, as well as housing and construction materials categories. Food inflation risk is due to higher livestock prices, owing to the spread of the African Swine Flu (ASF), while the El Nino weather phenomenon will weigh slightly on crop production.

Cooling Price Pressures To Support Consumption

These factors highlighted above are already having a positive impact on retail sales. Retail sales in Vietnam have recorded double-digit growth rates and we expect this to hold over 2019. In the latest data release, retail sales grew by 11.6% in September 2019, slightly higher than the 11.5% growth recorded in September 2019.

Le Ha

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