Tet Peach Tree Signals Vietnam Spending Rebound: Southeast Asia

For the past three years, Nguyen Thi Oanh could only afford a small kumquat tree for the Lunar New Year festival. With business picking up and smaller fuel bills, she plans to buy a more expensive peach tree for Tet in February.

“People are spending more than last year,” said Oanh, 46, who sells pork in a market in suburban Hanoi. “Dao trees are twice as expensive as quat trees, but I’m doing better so I can afford to spend a bit more this Tet.”

The country’s inflation eased to the slowest in at least nine years last month on falling oil prices, providing a boost to household incomes, a trend that’s emerging across Asia’s energy-importing nations. A rebound in consumption would help bolster Vietnam’s economy beyond foreign direct investment and exports, with growth forecast by analysts to reach 6 percent this year for the first time since 2011.

“The fall in oil prices could end up being a positive for Vietnam in 2015,” said Glenn Maguire, chief economist for Asia Pacific at Australia & New Zealand Banking Group Ltd. “With more Vietnamese than ever using vehicles, there will be a significant improvement in consumer purchasing power and corporate profit margins.”

Gross domestic product rose 5.98 percent last year, the fastest pace in three years, officials said Dec. 27. Vietnam typically reports quarterly growth data a few days before the end of each period, which has led analysts including Maguire and Eugenia Fabon Victorino at ANZ to say they are “skeptical” of the figures.

Holiday Season

Companies such as supermarket operator Nhat Nam Co. are beginning to see a turnaround in the domestic economy.

“It looks like consumption is improving,” said Vu Thi Hau, deputy general director of the company which runs about 20 outlets of the Fivimart supermarket chain in Hanoi. “Our sales have increased about 5 to 7 percent this holiday season compared to last year, and we expect it to rise further.”

Retail sales, after adjusting for inflation, grew 6.3 percent last year, compared with 5.5 percent in 2013, data showed. Cheaper fuel probably helped boost local vehicle sales to 157,810 units last year, a 43 percent increase, according to the Vietnam Automobile Manufacturers’ Association.

Officials ordered fuel retailers to cut prices more than a dozen times last year as oil slumped, with the most common grade 92-RON gasoline reduced to 17,880 dong ($0.84) a liter on Dec. 22 compared with 24,210 dong at the start of the year. Inflation eased to 1.84 percent in December from a year earlier, the slowest pace since at least 2006.

Yet the benefits of cheaper oil may not be sustained if there are further delays in restructuring loss-making state enterprises and cleaning up bad debt at banks, said Le Dang Doanh, a Hanoi-based economist and former government adviser.

Manufacturing Gain

“Consumption is picking up in some areas, as declines in oil prices have helped and will continue to help lower costs for businesses and people,” Doanh said. “However, we should be cautious since the improvement is not yet across the board.”

Lending growth may show limited improvement, with the central bank forecasting 13 percent to 15 percent this year from 12.6 percent last year even after it cut interest rates. While the government estimates exports will increase this year, they may be constrained by an uneven global recovery that has hurt shipments from Singapore to Thailand.

For now, businesses are benefiting from lower oil. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics had a reading above 50 every month last year, signaling expansion, even as China’s PMI contracted in six.

Pork seller Oanh said she’s preparing to expand her business if sales hold up through the Tet holiday, when people typically splurge on decorating their homes and buying new clothes and higher-priced food and alcohol to entertain family and friends.

“I plan to expand my business to some other markets in the city,” Oanh said. “But I probably should wait to see how things shape up during Tet first. How people spend for their Tet always give us a good sense for the whole year.”

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