Growth motivation from domestic market

The National Assembly and the Government issued many resolutions in 2022 and 2023 to recover and develop the economy after the COVID-19 pandemic. The Government has not only focused on promoting public investment, exports, and consumption but also concentrated on innovation to further strengthen the driving forces for economic growth.

Economic expert Dr. Tran Du Lich said that it is time to exploit the domestic market as well as boosting exports and strengthening the internal strength of the economy.

A consumer is shopping at a store that sells Vietnamese products in Chau Thanh District, Tay Ninh Province (Photo: NHI TRAN)

Utilising the home-field advantage

The domestic market including trade and services accounts for a large proportion of GDP growth. Furthermore, Vietnam’s market size of 100 million people is very attractive to domestic and foreign investors. Dr. Tran Du Lich emphasised that the solutions to foster the domestic market include tax tools, consumer credit expansion, tourism service promotion, and institutional reform. Regarding tax policy, the National Assembly agreed to extend the value-added tax reduction from 10% to 8% until June 30, 2024.

Regarding monetary policy, banks need to continue expanding consumer credit and review all credit for real estate buyers to speed up the disbursement of the 120 trillion VND package for social housing. “These solutions were issued and implemented by the Government in 2023 and they should be further promoted to take advantage of the domestic market. Specifically, it is necessary to make the most of all short-term policies in stimulating consumption, including Government spending,” Dr. Tran Du Lich added.

Sharing the same opinion, Dr. Nguyen Quoc Viet, Deputy Director of the Vietnam Institute for Economic and Policy Research (VEPR) under the Vietnam National University, Hanoi, said that the service sector, especially domestic consumption, made an important contribution to GDP growth in 2023.

It is forecast that domestic trade and consumption will continue to be one of the main driving forces contributing to economic growth in 2024, so it is necessary to focus on solutions to promote trade and services. It is worth noting that domestic enterprises are small and lack connection with the foreign-invested enterprises. In particular, the informal economic sector has been suffering after the COVID-19 pandemic. The policy building needs to pay attention to this issue to help improve the competitiveness of the business community and of the economy in general amid challenges in 2024.

Renewing demand stimulation solutions

According to Dr. Nguyen Quoc Viet, solutions to stimulate domestic consumption in the current context should be associated with new criteria of green growth and carbon reduction. In addition, there needs a solution to remove difficulties in the real estate market and reform institutions to strengthen investor confidence. Resolving the above challenges will help the economy to overcome headwinds and create sustainable growth.

Nguyen Anh Duc, Chairman of the Vietnam Retailers Association, noted that businesses should seize the opportunities from free trade agreements between Vietnam and countries and regions around the world and apply them to production and business activities.

In addition, many policies in support of businesses have been issued, but more fundamental policies are needed in 2024 to create a stable demand stimulus effect. Referring to the fact that Vietnam’s consumer confidence index fell to the lowest in Southeast Asia in 2022-2023 according to Nielsen’s assessment, Nguyen Anh Duc proposed that the Government maintain stable jobs for people to help improve this index.

Vietnam’s export of goods still relies mainly on the contribution of the FDI sector, accounting for 70-75% of the country’s export turnover which has not created much spillover effect for the economy. Dr. Do Thien Anh Tuan, public policy lecturer at the Fulbright School of Public Policy and Management, said that the most practical solution at this time is stimulating domestic consumption demand with emphasis on promoting the campaign of Vietnamese people prioritising the use of Vietnamese products.

According to experts, encouraging Vietnamese people to consume Vietnamese goods needs tax policies with a long period of VAT reduction instead of reducing it every six months. In addition, it is necessary to promote reduction of corporate income tax and personal income tax to create a strong and synchronous effect.

According to economic experts, the domestic market still has more potential to exploit, and stimulating domestic consumption is considered an important solution to contribute to GDP growth in 2024 and the following years. While growth pillars such as exports are facing difficulties and investment takes time to pay off, promoting consumption is the fastest and least expensive solution that is still likely to achieve the highest efficiency.