Brian Spence

*Brian Spence

The spectre of rising inflation haunts the Western world, very much blunting the joy over vaccine rollouts. In contrast, worry is building that Việt Nam is set to experience the opposite for the first time.

Fears about deflation stem from the fact that consumer prices have been falling by about 0.2 per cent a month for almost half a year now. Year-over-year inflation didn’t even hit 1 per cent for the first month of 2021 when it had been over 6 per cent in the prior period.

Signs of weakened demand, one of the prime causes of deflation, have been obvious. Everyone seems to be noticing how consumers aren’t buying as much as you would expect at present, defying the usual holiday season spending surge. Government figures suggest that growth in retail sales has halved from the pretty steady upticks of more than 20 per cent we’ve been seeing for a decade and more.

A damming up of spending is one of the salient features of a deflationary environment and can contribute to a worsening “doom loop” of falling demand. Quite simply, if consumers expect prices won’t rise, and may even fall, why would they buy today?

As you would expect, Harrison Spence Consulting has seen a huge influx of business in the last year as businesses look for ways to overcome the disruption caused by the pandemic. Increasingly though, our clients are seeking to deflect the potential impact of deflation too.

Deflation defence

The question of how to defend profitability is of course a huge concern amid blunted spending and pressure to lower prices to tempt consumers in.

There have been financing issues for businesses to contend with too as the country’s banks tackle the bad debts on their balance sheets. Cleaning up bad debts is certainly a laudable aim, but tighter credit conditions right when businesses need support could seriously hamper their investment plans. Indeed, this may amount to withdrawing lifelines for firms that are struggling presently, but which have the fundamentals to do well without the supply-demand imbalance we’re currently seeing.

I hate to see businesses felled in this way, which is why the team at Harrison Spence Consulting takes great professional pleasure in helping foreign investors seek otherwise strong companies to invest in. I personally really enjoy helping firms streamline and increase operational efficiency to defend their bottom lines. When you’ve been through as many business cycles as I have, the call to “batten down the hatches” so conditions can be ridden out is almost like muscle memory.

Balancing acts

Of course, Việt Nam is not alone in walking a tightrope economically in the ASEAN cohort. Weak inflation, to the point of deflation for some, is also being worried over in Thailand, Malaysia, Indonesia and Singapore.

One key difference, however, is in how much fiscal support countries are pumping into their economies. This is very much the order of the day internationally, such that the US is pushing a US$1.9 trillion COVID relief plan (a figure so mind-bogglingly large some fear it may push inflation into the red zone). Stocking demand and making sure prices rise enough but not too much is a complex balancing act.

A bump in the road

Although Việt Nam is lagging its ASEAN neighbours in fiscal support levels, we can expect help in several forms soon.

Economists are calling on the Government to loosen monetary and fiscal policy and possibly to offer tax “holidays” to help businesses power through, and they will surely be heeded. Other levers the authorities can pull, like raising energy costs – which will in turn force increased prices for products and services and so jumpstart demand – will likely work to the good too.

In all, I’m not particularly worried about Việt Nam’s growth train being derailed. The country is in a far better position to bounce back from the pandemic than many. I would also argue that we’re far better at pulling together as a country to get over bumps in the road.

As consumers, we should remember that we can all do our bit. And that means loosening the purse strings and not putting off those purchases it might be tempting to leave for another day.

Having just returned from holidays in the UK, where one can’t even visit the shops for anything other than essential items, I’ll certainly be making the most of the opportunities here and treating myself.

Just don’t tell my wife.

*Brian Spence is managing partner of Harrison Spence Consulting. He has more than 35 years of experience in the UK financial services industry as an investment manager, financial planner and M&A specialist. He is a regular contributor to the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address is brian@harrisonspenceconsutling.com.