Priority should be given to boosting domestic demand

According to the General Statistics Office (GSO), the services sector grew 6.64% in the first half of the year, contributing 3.28 percentage points to the overall economic growth rate of 6.42%.

It is worth mentioning that total retail sales and consumer services increased 8.6%, driven by growth in the accommodation, catering, and travel sectors. The number of international arrivals to Vietnam in the first six months soared by 58.4% over the same period last year. Final consumption also registered decent growth, suggesting that consumers are spending more on travel, tourism and leisure activities.

Basic spending and spending on personal interests also increased after a long period of being affected by the pandemic, which significantly changed consumer behaviours and habits.

However, the domestic consumption demand has not recovered as strongly as expected. According to the GSO, the growth in total retail sales and consumer services in the first half of 2024 was 2.7 percentage points lower than the same period in 2023 and below pre-pandemic levels.

A survey of trade and service enterprises in the second quarter of 2024 also showed that up to 56.4% of enterprises reported that domestic demand was low. Sectors with lower-than-expected growth included finance, banking, insurance, arts and entertainment.

To increase demand during the summer peak, airlines and tourism agencies have been working together to launch travel promotion programmes, including the organisation of night flights with more affordable prices. However, domestic tourists have not shown much interest in these offers due to several disadvantages, including the difference between the hotel check-in times and flight schedules.

As the global economy still faces many difficulties, with export growth slowing down and many enterprises facing shortages of orders, economic experts have suggested giving a priority to boosting domestic consumption demand as an important measure to bolster economic growth in all of 2024.

Therefore, the government, ministries and localities need to take synchronous measures, including reducing the prices of consumer goods, increasing wages, lowering personal income tax and corporate income tax, increasing loans for consumption, deferring debt payments, increasing social welfare benefits, expanding unemployment insurance, and reducing tuition and healthcare fees.

According to Nguyen Thi Mai Hanh, head of the GSO’s System of National Accounts, with a population of 100 million people, domestic consumption remains an important factor in driving economic growth.

The extension of the VAT reduction policy until the end of 2024 and the increase in basic wages from July 1 are expected to produce a positive effect. An estimate by the Ministry of Finance shows that VAT reduction could reduce government revenue in 2024 by 47 trillion VND (1.85 billion USD).

Although tax reduction will result in a government revenue decrease in the short run, it can help nurture sources of income because the direct tax cuts on shopping bills will encourage consumers to buy more goods and services, thereby helping to restore business and production activities.

Nguyen Quoc Viet, Deputy Director of the Vietnam Institute for Economic and Policy Research, stated that the VAT reduction policy has exerted a multidimensional effect on the economy when prices go down and consumption goes up, helping enterprises to increase production, restore orders and reduce input costs.

He added that if goods are left in inventories, prices and inflationary pressure will go up, making it hard to boost consumption and resulting in difficulties for many production and business sectors.

According to Nguyen Bich Lam, former head of the GSO, total final consumption demand accounts for over 70% of the Vietnamese economy’s GDP. Therefore, to promote production, create jobs and lay the foundation for increasing domestic consumption demand, the government needs to carry out tax and social security policies, reduce air and rail fares to boost domestic travel demand and attract foreign visitors, step up sales programmes, and implement a preferential credit policy to address housing problems for the working people.