Statistics show that since the beginning of the year, the total retail turnover of commodities and services has been increasing steadily by 30% over the same period of last year. However, without including commodity and service price increases, the retail turnover increase would be 6% only, or lower than the increase of the same period of 2007.

It is clear that purchasing power has decreased sharply due to high inflation, and the decreased purchasing power is believed will affect businesses’ production.

The lower purchasing power has had clear impacts on the consumer price index (CPI), making the index become minus in October 2008 (- 0.19%). The CPI decrease has sparked concerns about deflation, while experts have called on the government to take action to stimulate demand which, in its turn, will stimulate local production.

However, Vu Dinh Anh, Deputy Head of the Market and Price Research Institute under the Ministry of Finance, said that it is not necessary to focus on stimulating demand at this moment.

“As Vietnamese people have cut consumption, they will save up their money. If the money can be put into investments, this will be a good thing for the national economy, especially as Vietnam has been much relying on foreign investment,” Anh said.

However, he said added that in order to attract the money, Vietnam needs to create a good investment environment. Anh admitted that it is very difficult to persuade people to make investments at current moment.

In fact, experts’ opinions about whether to stimulate the demand still vary. However, the demand stimulation was kicked off when some banks resumed loaning to fund purchase deals. It is clear that the low purchasing power will have big impacts on businesses’ performance, though not all enterprises target the domestic market.

As demand in the world has been decreasing, China has been attempting to export products, especially apparel and consumer products, to other markets, including neighbouring Vietnam.

According to the National Centre for Socio-Economic Information & Forecasting, it is now when Chinese products can be imported at very low prices just equal to 50% of that at the end of 2007. Meanwhile, Vietnam has not made any survey to measure the possible impacts of this on Vietnam’s garment market.

Source: Dau tu