Economic woes in Vietnam are spreading with retail sales growth cooling to the slowest since at least 2004 in the eight months through August
Customers flock to a mooncake shop in Hanoi to buy the specialty for the mid-lunar-autumn Full Moon Festival
By noon on a recent weekday, Nguyen Thi Hanh hadn't sold a single mooncake at her sidewalk kiosk set up for the Mid-Autumn Festival on a busy street in Hanoi. She squatted on the ground to tend to her embroidery, instead.
"I'm very worried the slow sales will cut into my bonus this year," said the 52-year-old vendor, who sells the sweet pastry stuffed with mung beans at VND36,000 ($1.70) each for a local food chain. Sales are about half of last year's, she said September 3, about two weeks before the festival. "There's no way I can meet the quota set by the company if this continues."
Hanh's difficulty in selling during one of the busiest shopping periods in Vietnam adds to evidence that the country's economic woes are spreading. Retail sales growth cooled to the slowest since at least 2004 in the eight months through August as consumers cut back on purchases of items from cars and plasma televisions to food, piling pressure on companies weighed down by bad debt, a struggling property market and mounting losses.
"If people aren't spending, businesses aren't moving their merchandise, their revenues are falling and they are falling behind on paying back their debt," said Alan Phan, Ho Chi Minh City-based chief economist at VinaCapital Group, the nation's largest fund manager. Faltering retail sales "are a risk to the economy. GDP growth can't recover if such a big chunk is weak."
The economy expanded 4.9 percent in the first half from a year earlier, and the International Monetary Fund predicts Vietnam is set for a third straight year of sub-6 percent growth for the first time since 1988. Retail sales make up about 60 percent of gross domestic product, according to Phan's estimates.
Vietnam's central bank has cut its refinancing rate eight times since the beginning of 2012 to spur lending, and the government has set up an asset management company to clear bad debt. Still, credit grew 6.5 percent in the eight months through August compared with a full-year target of 12 percent, official data showed.
Private consumption growth slowed to 3.5 percent last year from 4.7 percent in 2011, according to the General Statistics Office. It accounts for about 65 percent of Vietnam's GDP.
In comparison, private consumption in Malaysia climbed 7.7 percent in 2012 from a year earlier, while in Indonesia it climbed 5.3 percent last year, according to official data.
Spending in Vietnam is also hindered by inflation, which quickened to 7.5 percent in August, the fastest pace since May 2012. Retail sales of goods and services rose 12.3 percent in January through August from a year earlier, before accounting for inflation, according to official data compiled by Bloomberg. That is the slowest pace in at least nine years.
After accounting for inflation, retail sales growth in the first eight months of the year was 5.1 percent compared with 6.8 percent in the same period a year earlier. The HSBC Holdings Plc and Markit Economics manufacturing purchasing managers' index for Vietnam remained below 50, signaling contraction, for a fourth straight month in August.
"Vietnam's businesses and wage earners are in for a rough ride," Trinh Nguyen, Hong Kong-based economist at HSBC, said in a note last month. "With softer purchasing power, demand for goods, especially manufactured goods, has decelerated."
The return on equity of Vietnam's consumer staple companies lags behind some regional peers, according to the companies' latest filings. Vietnam's companies in that category reported average ROE of 11 percent compared to Thailand's 16 percent and Indonesia's 15 percent. For Masan Group Corp., which makes noodles and soy sauce, it was 4 percent, compared with Thai instant noodles company President Rice Products Pcl's 18 percent.
Struggling with rising costs and slowing demand, Vietnamese companies have cut jobs and wages. The unemployment rate was 2.3 percent at the end of June, up from 1.96 percent as of December 31, according to the statistics office.
Those figures are probably underreported, underemployment "has increased significantly and that reflects the change in the economic conditions," HSBC's Nguyen said. The number of business closures in Vietnam increased 12 percent in the first six months from a year earlier, according to government data.
"People are buying less of almost everything," said Le Thi Hao, 46, who lost her job as a cleaner in a food factory last year when it cut output, and now sells fruits on a sidewalk. "My family can afford to eat meat only once every 10 days."
Vietnam's vehicle sales grew 13.6 percent in August from a year earlier, slowing from 22.7 percent in July. Consumers are also cutting back on essentials such as groceries and toilet paper, according to the Ho Chi Minh City office of market research company TNS, which surveyed 500 urban households in Vietnam late last year.
The TNS survey showed 79 percent of people planned to spend less, or the same amount this year, on household-care products, while 25 percent said they will cut spending on utilities.
Accountant Tran Thi Hong Mai, whose salary was cut by 40 percent late last year, has had to make many adjustments. She doesn't buy expensive foreign labels any more, and instead gets locally-made apparel. She also packs lunch to work every day.
For the Mid-Autumn Festival on September 19, Mai bought mooncakes at a street kiosk rather than from a luxury hotel as she used to.
"When we are earning much less and inflation is high, we need to be careful with our spending," Mai said, picking up a box of four mooncakes for VND140,000. "I only spend on essential items like milk and books for the kids these days."
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