China, US Fed weighed in VN economy forecast

Wednesday, Sep 09, 2015 08:04

Two foreigners make bank transactions at Bao Viet Bank. Viet Nam has raised several possible scenarios about foreign exchange and the economy in the context of possible China's potential yuan devaluation and the Fed's rate hike. — VNA/VNS Photo Tran Viet
HA NOI (Biz Hub) — Several future scenarios about Viet Nam's foreign exchange and economy in the context of possible China's currency devaluation and US Federal Reserve's interest rate hike have been put forth by the Ministry of Planning and Investment's National Centre for Socio-Economic Information and Forecast.

According to the centre, in case of a scenario in which China doesn't continuously devalue the yuan but the Fed raises the interest rate, Viet Nam's export to and import from the US in general will decrease by 0.04 per cent and 0.11 per cent in the last quarter of this year, respectively. In the same scenario, the drop will be 0.13 per cent and 0.1 per cent in 2016.

"However, as the US is Viet Nam's key export market with most of the imports being consumer and necessary goods, a rise in US dollar will help Viet Nam's export value rise and contribute to lifting Viet Nam's GDP up by 0.07 per cent in Q4 this year and 0.6 per cent in 2016," the centre forecast.

In this scenario, the Vietnamese dong will be also devalued by 0.96 per cent in the last quarter of this year, according to the centre.

Another scenario is that China devalues the yuan and Fed raises the rate.

"This scenario will be the worst," the centre said, adding that in such a situation, many countries would be forced to join a race to devalue their local currencies in an active or inactive manner, or in other words, a currency war.

"Viet Nam's economy is too small and fragile to become a peaceful island that can stay firm in a currency devaluation storm that will be the doing of other neighbouring and global countries," the centre said.

Elaborating on the State Bank of Viet Nam's decision to devalue the dong by 1 per cent and extend the foreign exchange trading band to 3 per cent in the third quarter, the centre said the dong devaluation did not have significant impact on Viet Nam's exports.

The centre estimates that the country's exports in Q4 this year are nearly the same as in previous quarters this year and will increase by only 0.17 per cent next year, explaining that Viet Nam's imports are mainly for domestic private consumption while imports for domestic production account for only 28.5 per cent of the country's total imports.

With the dong devaluation, the country's import value in Q4 will decrease by 0.06 per cent but will then increase by 0.048 per cent in 2016, the centre said. — VNS

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