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Saturday, January 28, 2023

Consumption seen weak in year-end season

By Nguyen Quang Binh

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What should import-export companies be alert to from now until the end of the first quarter of 2023? Should they be chasing the commodities price, in the hope of increasing profits, or be cautious with potential risks?

Monetary policies and interest rate hikes in developing countries have brought about currency instability in underdeveloped countries. Runaway inflation in the U.S. and Europe has delivered a blow to consumers there and hindered the consumption of products in material supplying countries.

According to a young salaryman in the U.S., inflation rose over 8%, but his salary increased only 3%. Therefore, it was easy to see many people tightening spending, due to the shrinking of their pocket money. All walks of life have been negatively impacted.

Massive layoffs in many countries have become top concerns of different administrations and social management authorities. In the year to mid-November 2022, nearly 75,000 employees working for tech companies in the U.S. had been fired. Also, Amazon plans to cut thousands of jobs while HP Inc. will lay off 10% of employees if their team does not meet revenue targets.

Besides tech companies in Europe, grocery distributing companies, like Getir in Turkey, or medical equipment manufacturing companies like Philips in the Netherlands, reported cutting more than 4,000 jobs each.

The enterprises and retailers should therefore be cautious about the consumption power during upcoming public holidays, given that compensation of workers in many countries has been partially or wholly cut, with inflation forcing them to focus their spending on utilities.

Footgearmex Footwear Co., Ltd. in HCMC has recently laid off 1,200 employees, or two-thirds of their workforce, due to a lack of orders for shoe exports, while a pangasius bocourti (basa fish) processing company in An Giang Province cut more than half of their workers because of the drop in exports.

Many shipping companies have recorded substantially decreased bookings, though they had cut container transport costs close to the rate prior to Covid-19. This was further evidence that orders on public holidays at the end of 2022 and 2023 would not be as plentiful as expected, despite crude oil prices remaining high. U.S. contractual crude oil prices hiked 12.33% for the year, which was still one-third higher than that of the pre-pandemic period.

The rising of transport costs was not only due to the energy price hike, but also the purchasing power of the market. Black Friday, the starting date of the largest promotion season of the year, recorded a sluggish start, especially in shopping stores for average income earners.

Inflation and global recession worries have compelled many countries to tighten their monetary policies. Do not think that the U.S. Dollar Index (DXY) drop means that commodity prices would increase. To cope with inflation, many countries have tried to bring down commodities prices to ease the hardships of their residents, but also disregarded the principle of “when DXY hikes, commodities price will fall”.

The above principle showed clearly that during the past, though DXY decreased, commodities prices that did not necessarily inch up, had to go down some time. This is a paradox to which many commodities trading enterprises failed to pay due attention.

The enterprises and retailers need to stay alert to the consumption power of the upcoming public holidays, when compensation of employees in many countries is partially or wholly cut and inflation forces them to focus their spending on only essentials.

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