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Consumer demand likely to slow in second half
The end of income tax breaks and loan subsidies in the government’s economic stimulus package could result in slower consumer spending in the second half of this year.
To boost consumer spending as the global economy slowed, the Vietnamese government gave wage and salary earners a six-month personal income tax holiday, which ended on June 30.
Last month, the National Assembly rejected a proposal to extend the personal income tax exemption to the end of the year.
The government’s stimulus package may have cushioned Vietnam’s economy from the worse of the global economic crisis. In the first half of this year, the economy grew by 3.9 percent, lower than the 6.5 percent in the first half last year, but much faster than global growth.
The global economy is expected to contract by 1.4 percent this year, according to International Monetary Fund forecasts.
Consumer spending in Vietnam is expected to slow in the second half of this year as wage and salary earners adjust to having less disposable income.
The end of the year will bring another shock for manufacturers, with the 4 percent government subsidy on loan interest rates for small and medium-sized enterprises ending on December 31.
The domestic market may become even more competitive as Vietnam lifts restrictions on foreign entities entering the market.
As part of the commitments made to join the World Trade Organization in 2007, Vietnam pledged to open its retail market to joint ventures in 2008 and foreign firms in 2009.
Manufacturers may have to increase their selling prices or cut costs to maintain profits.
Ngo Thi Bau, chief executive of garment company Nguyen Tam, said she planned to limit expenses, including the firm’s telephone bill and the number of faulty products produced, to cover the post-subsidy increase in the company’s loan repayments.
The Ho Chi Minh City-based company recently agreed to give its employees a 50 percent pay rise in exchange for a 100 percent increase in output, Bau said.
Dr. Tran Du Lich, deputy head of the HCMC delegation to the national parliament, has proposed the government adopt two measures to cushion the economy from the effect of the end of the loan subsidy scheme.
Lich recommended the government extend the loan subsidy at half the current rate but also maintain the 4 percent subsidy for firms particularly hard-hit by the economic crisis.
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