China, US Fed weighed in Vietnam economy forecast
Several future scenarios about Vietnam'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, Vietnam's export to and import from the US in general will decrease by 0.04 % and 0.11 % in the last quarter of this year, respectively. In the same scenario, the drop will be 0.13 % and 0.1 % in 2016.
"However, as the US is Vietnam's key export market with most of the imports being consumer and necessary goods, a rise in US dollar will help Vietnam's export value rise and contribute to lifting Vietnam's GDP up by 0.07 % in Q4 this year and 0.6 % in 2016," the centre forecast.
In this scenario, the Vietnamese dong will be also devalued by 0.96 % 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.
"Vietnam'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 Vietnam's (SBV) decision to devalue the dong by 1 % and extend the foreign exchange trading band to 3 % in the third quarter, the centre said the dong devaluation did not have significant impact on Vietnam'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 % next year, explaining that Vietnam's imports are mainly for domestic private consumption while imports for domestic production account for only 28.5 % of the country's total imports.
With the dong devaluation, the country's import value in Q4 will decrease by 0.06 % but will then increase by 0.048 % in 2016, the centre said.