Vietnam is increasingly emerging as the one of the most active trade partners with the European Union (E.U.). The E.U. has become Vietnam’s second largest export market after the U.S. This growth, coupled with the free trade pact between Vietnam and the E.U., known as the EVFTA, is expected to fuel trade relations in the years to come.
Vietnam accounted for 19.1 percent of the 201.4 billion euros (nearly $230 billion) in total trade between the EU and members of the Association of Southeast Asian Nations (ASEAN) last year. That figure is up from 15.8 percent in 2014, global news provider Bloomberg cited data from the E.U. delegation in Singapore as saying.
Now as the United Kingdom has voted to leave the E.U., the spillovers from this unprecedented decision are likely to beset Vietnam’s exports, say policymakers and economists.
Experts said that Vietnam’s exports may be harmed due to Brexit’s direct hit on currency moves, battering the British pound and making Vietnamese exports less competitive.
Vietnam’s exports to the U.K. alone are currently estimated at roughly 2.9 percent of the Southeast Asian country’s total export value, reaching $4.6 billion last year. Experts forecast that a 10 percent decline in Vietnam’s exports to the U.K. could translate into a $460 million loss.
“A weaker British pound will have negative impacts on the U.K.’s gross domestic product growth, and Vietnam’s exports will face more hurdles due to price hikes,” said economist Nguyen Tri Hieu.
Hieu feared a domino effect as a plunging pound would affect the yuan.
“Vietnam relies quite heavily on neighboring China. If the yuan is going to devaluate, the Vietnamese dong will hardly hold up. If things come to that, market regulators will have to calculate the depreciation of the dong as a move to keep Vietnamese exports competitive [in the international market],” said Hieu.
The securities arm of top partly private commercial bank Vietcombank said in a report about Brexit's impact on Vietnam’s economy that the central bank might not have many resources left to keep the dong from succumbing to the pressure.
A trader from BGC, a global brokerage company in London's Canary Wharf financial centre, reacts during trading on June 24 after Britain voted to leave the European Union. Photo by REUTERS/Russell Boyce |
Investors around the world appear to have been caught off-guard by the outcome of the British referendum.
“The market should keep calm,” said Truong Van Phuoc, vice chairman of the government’s National Financial Supervisory Commission.
“In response to huge economic and political blows like this one, we have learnt from experience that we must collect ourselves and stay calm for the upcoming developments. From my personal point of view, the British pound will recover, and other currencies, including the euro, will follow the suit,” added Phuoc.
The United Kingdom’s decision to leave the E.U. has not had a direct hit on the country as trade links between Vietnam and E.U. still remain relatively weak in comparison with the U.S., Japan, Hong Kong and Singapore.
Singapore is been the biggest partner with the E.U. among the 10 ASEAN countries.
“For the foreseeable future, Brexit will not have any considerable impacts on our economy. We still have to wait and see,” said Do Thi Ngoc, deputy head of the Price Statistics Department under the General Statistics Office.
The fact that the Britain voted to leave the E.U. sent shockwaves around the world on Friday, rocking the global stock markets and battering the British pound and emerging market currencies.
Vietnam’s benchmark VN Index dropped 11.5 points or 1.85 percent to 620.77, mainly dragged by bank stocks. The decline on Friday was the largest since the beginning of this year.
Alongside volatilities on the stock market was a rush to safe haven investments such as gold. Gold prices hit a 10-month high at VND35.2 million ($1,570) – VND35.9 million ($1,601) per tael. One tael is equivalent to 37.5 grams.
Economist Nguyen Tri Hieu seemed vigilant about potential financial volatilities. He said the upcoming spillovers from the Brexit vote are likely to matter far more to the country than any immediate hit on the benchmark VN Index on Friday as they threaten to prompt foreign investors to leave the Vietnamese stock markets.
“When the global stock markets become volatile, foreign investors, including E.U. venture capital funds, will shift their money from emerging markets like Vietnam back to traditional markets in an attempt to seek a safe haven,” said Hieu.
He suggested policymakers should take action to prevent such a thing from happening.
Now that the British people have notified the E.U. they want out of the bloc, the UK will have two years to officially negotiate its departure, according to Article 50 of the E.U.'s Lisbon Treaty. Prime Minister Cameron will not step down until October, which he said he might do to provide an orderly transition.