Vietnam’s 2023 household spending estimated to grow 7.3%: Fitch

However, growth in 2022 came off a low base 2021 due to the recovery effects. The growth in consumer spending growth over 2023 will come as the wider Vietnamese economy recovers and growth figures return to a more stable and medium-term trajectory.

This is supported by growing domestic demand, as well as the expected recovery of international tourism. However, we expect real household spending growth to be inhibited in 2023 due to the effects of increased inflation.

This will also negatively impact consumer spending over the rest of the forecast period (2023-2027) and will significantly feed into purchasing habits, such as a re-focus on essentials and limited growth in discretionary categories.

Fitch’s forecast for year-on-year growth in consumer spending in Vietnam in 2023 is in line with our Country Risk team's forecast that the domestic economy will grow by a real rate of 6.6% y-o-y, a fall from the strong growth of 8.0% y-o-y in 2022.

The main driver of economic growth will be the rebound in consumer spending, as well as growth in net exports. The country's unemployment rate will be stable over the year, at 2.2% of the labor force, while inflation is expected to edge higher, reaching an average of 4.5% over the year.

Over 2023, Fitch forecasts the Vietnamese dong to depreciate against the US dollar to 25,400VND/USD in 2023, from 23,600VND/USD in 2022. For Vietnam, which remains heavily reliant on imports to meet local demand, this will provide further headwinds as imports will become more expensive.

Overall, the downward revision comes as we expect growth to moderate more sharply over the coming quarters, as the economy faces mounting headwinds stemming from elevated inflation, the falling value of the Vietnamese dong, and a slowing global economy

In Vietnam, inflation has been ticking upwards, reaching 4.9% y-o-y in January 2023 (latest available data). This was the highest rate of inflation in the country since March 2020. The increase is mainly due to the sharp rises in prices across most categories.

Additionally, in January 2023, food inflation came in at 3.7% y-o-y, the highest since December 2021. As Vietnamese consumers are focusing on essentials as budgets tighten, we expect the rising cost of daily essentials to be felt further by consumers.

Fitch forecasts inflation to mediate downwards for 2023, averaging 4.5% y-o-y and ending the year at 4%. The risk now is that inflation remains elevated at these levels for longer than anticipated, which will accelerate the erosion of household purchasing power.