US Market Turmoil Affecting Vietnam’s economy

Experts, State officials, and entrepreneurs all think that Vietnam will be heavily influenced by the US economic recession.

Vietnam, and especially textile and garment companies will not be safe from the US economic recession. It is expected that in 2008, the US market will consume 55% of Vietnam’s total garment exports.

As the US economy falls further into difficulty, Vietnamese exporters have to offer lower sale prices in order to stimulate the demand from US consumers. Once they have to lower prices, their profit will be lower and they will face the possibility of becoming the defendants in anti-dumping lawsuits raised by US textile and garment producers. Currently, the US still is still imposing the apparel imports monitoring program on imports from Vietnam.

The US economic recession has had big impacts on footwear exports in recent months. Vietnamese companies have been facing a lot of difficulties negotiating new orders. Enterprises need to think of expanding export markets instead of focusing on the US in order to avoid risks in anticipation of weaker purchasing power. However, it is not so easy to do that and it takes time.

The optimal solution for footwear companies is trying to negotiate to get the best deals on contracts. Moreover, they also need to increase the ratio of locally made products or parts of products and economize production materials.

If the US economy falls into recession, this will affect Vietnam in three ways. First, in terms of exports, the US is a huge market for Vietnamese products; it consumed 24% of total exports in 2007. As American consumers tighten their belts, it will more difficult to export products to the US. The US will cut imports of garment and footwear products, which are Vietnam’s key export products.

Second, when the US economy falls into recession, East Asia will be the region to suffer most, and they hold 60-70% of total investments in Vietnam. These countries will reduce spending while trying to boost exports. As a result, they will reduce their investments in Vietnam, while Vietnamese export products will face big challenges. The competition between Vietnam and East Asian countries, which have the same advantageous export items, will become fiercer.

Third, the foreign portfolio investment into Vietnam, especially into the stock market, will decrease.

On January 23, at the conference “Achieving sustainable growth – one year after WTO accession’ held in Hanoi, Brad Levitt, Global Head of the Capital Markets for Standard Chartered Bank said that the falls of the global stock markets have been negatively affecting Vietnam’s stock market and credit market

The Government of Vietnam should discuss the solutions to problems right now. It has to take actions to achieve macroeconomic balance, reduce inflation, reduce the trade deficit and cut ineffective investments, while helping improve the competitiveness of Vietnamese enterprises.

source: vietnamnet