This is being seen in all aspects of aggregate demand and economic growth, the efficiency of production and business activities of enterprises, the income of people, and the welfare of employees in 2023.
Untapped potential
The aggregate demand of the Vietnamese economy is shaped by factors such as final consumption by people and households, Government spending, investment by the business sector, and net exports or trade surplus through import and export activities. In this, the final consumption of people and households is the most important part of aggregate demand, which involves the total retail sales and consumer goods sales and services. In 2022, this indicator reached USD 240 bln and compared to the total export turnover in 2022 of USD 371 bln, this figure is equivalent to 65 percent. However, over the last few years, while exports have decelerated, the growth rate of total retail sales and domestic consumer goods and services revenue has maintained a fairly high growth rate.
This shows that Vietnam has great potential to make final consumption an important pillar of aggregate demand. During the middle of last April, our country's population officially reached 100 million people. This is a market with the 15th largest number of consumers in the world and the 3rd largest in ASEAN. This also means that the demand for housing, rental housing, and housing services for people is increasing sharply. However, in the first six months of the year, a huge demand for housing did not materialize and hence did not contribute to an increase in aggregate demand of the economy, which then affected the overall growth rate.
It is clear that developing a housing market for people, especially those with real needs, will directly contribute to aggregate demand in the short term, and also contribute to the formation of a more reasonable and sustainable aggregate demand structure in the long term.
Investment and spending
Government spending is an important component of aggregate demand. Therefore, after every economic shock, the role of government spending is enhanced to support aggregate demand. In 2023, Vietnam's total public investment capital is expected to reach VND 750,000 bln, much higher than in previous years. It is known that a sharp increase in public investment leads to an increase in government spending, accompanied by risks of increased public debt which then sees a fallout in private investment. Therefore, it should be maintained at a reasonable level in relation to private investment and to the aggregate demand of the economy.
To restore and increase aggregate demand, it is impossible not to mention the role of investment by businesses and households. Investment by enterprises and households not only contributes directly to aggregate demand but also contributes to the expansion of production capacity and the ability to increase and improve goods and services in the future. Investment capital in the first six months of the year in the domestic private sector increased slowly, reaching only VND 752,000 bln, and in the Foreign Direct Investment (FDI) sector, it only reached USD 10.02 bln. Therefore, it is necessary to improve the business environment and the investment environment and strengthen trust and entrepreneurship within enterprises.
In addition to promoting FDI and increasing domestic private investment, it is necessary to encourage the number of newly established enterprises. Encouraging investment expansion of more than 850,000 enterprises and more than 5,000,000 business households operating nationwide should also be a focal point.
Exports need boost
The decline of export activities also shows some limitations that need to be overcome such as the requirement to continue to diversify export products and export markets, because now some key export products of Vietnam seem to have lost their competitive advantage. For instance, the emergence of the electronics industry also puts pressure on competition for resources, especially for labor, for many other industries such as textiles and apparel or footwear. The general level of Vietnam's labor costs will also gradually improve, which is no longer an advantage for some export industries that mainly use cheap labor costs.
Efforts to diversify products, and diversify markets of categories are the immediate solution, but may not be enough to make up for the lost advantage in labor costs. This is a challenge that needs to be overcome to ensure that the demand from the world market for exports from Vietnam will be maintained sustainably in the medium term.
The trade surplus in the past has been maintained largely due to a sharp decline in imports than in exports, reflecting the decline in global demand for Vietnamese goods and services. It also shows that the amount of imported machinery and equipment to support the production capacity of the economy has declined. This is clearly not a favorable factor for the economy in the coming years.
The challenges facing the economy in the first half of 2023 show many constraints on the aggregate demand structure of the economy that need to be adjusted. This adjustment is not only aimed at bringing the economy back to a higher growth rate in the last months of the year, but also towards solutions to restructure aggregate demand and restructure the economy, along with restructuring investment, production, and business activities, all of which are aimed at stronger competitiveness, autonomy and self-reliance in the economy.
