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Lower domestic demand brings both joys and worries
The domestic demand decreases have led to the high inventory level and the scaling down of the domestic production. However, it has also helped reduce the trade gap, which has always been the headache for the government.
According to the General Statistics Office, the total retail turnover of goods and services in 2011, the most important of domestic consumption, increased by 4.7 percent, if not counting on the price increases.
As such, the total retail revenue in 2011 witnessed the lowest growth rate since 2000, which is only higher than the 3.7 percent increase level of 1999, the year which bore the impacts of the regional finance and monetary crisis.
The increase of the index also slowed down from the first months of 2011 to October 2011, while it has only increased in recent months. This also represents a growth rate which is much lower than the GDP growth rate. Meanwhile, in Vietnam, the total retail turnover growth rate was always higher than the GDP growth rate.
The pressure on inflation rate eased
There are four noteworthy things in the domestic demand decreases
First, the investment and final consumption in Vietnam has more and more sharply exceeded GDP (the ratio of investment and final consumption on GDP in 2000 was 107.1 percent, while they were 110.6 percent in 2005 and 114.9 percent in 2010).
The ratio of final consumption on GDP in Vietnam is 73 percent, the second highest in the region, just after the Philippines – 81.3 percent. Meanwhile, the figures are 66.6 percent for Thailand, 66.9 percent for Indonesia, 48.1 percent for Singapore and 40.8 percent for Laos.
In other words, with the shrinking of the total society’s capital for investment and development (the ratio of investment on GDP has dropped from 41.9 percent to 34.6 percent), the shrinking of domestic consumption has led to the decrease in the ratio of final consumption on GDP and to the decrease of the harmonization of the above said general relation.
The lower domestic demand has partially helped reduce the trade gap. In 2011, the excess of import turnover of export turnover was 9.5 billion dollars, the lowest level if compared with the four years before (14.2 billion dollars in 2007, 18.03 billion dollars in 2008, 12.85 billion dollars in 2009 and 12.61 billion dollars in 2010).
The year 2011 witnessed the sharp falls of a lot of import items, such as the imports of motorbikes under the mode of complete built units (CBU) (down by 30.9 percent), steel (20,8 percent), cotton (9 percent). Other products saw the import turnover unchanged or increase very slightly, such as normal metals, papers and CBU cars.
Third, the lower demand has also helped curb inflation and made the consumer price index (CPI) increase slow down since August 2011. The goods prices are expected not to increase sharply on Tet, which would help curb the inflation rate in 2012 at below 10 percent.
Fourth, the demand decreases, together with the “Buy Vietnamese goods” campaign initiated by the Communist Party’s Politburo have encouraged people to use domestically made products instead of luxury imports.
Experts have many times warned about the “middle income trap”, saying that this may be caused by the overspending.
Signs of production stagnation clearer
Of course, the shrinking of the domestic consumption is a big worry, because consumption is a driving force for economic growth.
The General Statistics Office has estimated that the inventory volume by December 1, 2012, of the manufacturing industry had increased by 23 percent in comparison with the same period of the last year. Meanwhile, the industrial production growth has been slowing down: 9.7 percent in the first six months of 2011, 7.8 percent in the first 9 months, and 6.8 percent in the whole year 2011.
vietnamnet
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