Tough times ahead for business

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LocaTough times ahead for businessl and foreign experts and economists have warned that enterprises in Vietnam might face troubled times ahead due to weak consumer demand.

The warning came after the General Statistics Office (GSO) has projected a consumer price index (CPI) decline of 0.44% in March versus the previous month. The experts stressed this decrease is not good for enterprises and the economy as a whole.

Economist Ngo Tri Long ascribed the CPI drop to the fact that consumers had continued to tighten spending due to shrinking disposable incomes, thus affecting aggregate demand. This is in stark contrast with an argument of a GSO official that the absence of inflation fear has led consumers to reduce stocking up on goods.

Trinh Nguyen, Asia economist at HSBC, said the dropping CPI showed consumers’ confidence was being eroded. The performance of many small-sized enterprises remains weak, coupled with unsettled bad debt, Nguyen said, adding this has affected employment and income.

This is why consumer demand stayed low during the Tet holiday (Lunar New Year) as consumers have been saving money for rainy days, she told the Daily.

Long said although the gross domestic product (GDP) had expanded 4.96% in the first quarter, which is slightly higher than in the same period of 2012 and 2013, at 4.75% and 4.76% respectively, but is still lower than in 2010 and 2011, at 5.97% and 5.9%.

Those figures showed the nation’s economic growth is not as high as expected, and sales results of enterprises can be affected if this dismal economic situation continues. Consequently, Long said, enterprises would face stagnant production and high inventory, and these would place a negative impact on the economy.

Long said the falling CPI would give scope to producers and suppliers of those goods and services still monopolized by the state sector to hike prices.

For instance, coal for thermo-power plants has marked up 4-10% this year, piling more pressure on the electricity sector to lift its tariffs.

Long forecast an increase in electricity prices was just a matter of time and that this would make it more difficult for businesses to sell their goods as they could not hike prices given sluggish consumption. Higher input costs would undermine the competitiveness of local companies at a time when Vietnam is lowering or removing tariffs to fulfill its commitments to bilateral and multilateral free trade agreements.

“Many Vietnamese companies would be knocked out on their home market,” Long told the Daily.

As for inflation risk, Long said, although the CPI of March is down compared to last month when inflation was low but the risk is still out there because the key problems faced by the economy, such as investment efficiency, productivity and corruption, have not been addressed.

Long said there had been no signs of deflation as the market was still growing. However, he insisted what mattered most now for authorities was to attend to the reality and find practical measures to support the market.

Source: SGT

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