Vietnam still safe from yuan devaluation

The government of Vietnam has said that the national economy has not been hurt by the Chinese yuan devaluation but analysts are less optimistic.

The Vietnam purchasing managers index (PMI) released by Nikkei fell from 52.6 points in July to 51.3 points in August, which was the weakest improvement in business conditions since March.

According to Tri Thuc Tre, Nikkei said that though the ‘health’ of the production sector has improved in the last two years, the production output in August saw the most modest growth rate in the last 10 months, while demand decreased.

The report also pointed out that the increase in the number of new orders slowed down in August. Meanwhile, the number of new export orders in August fell for the third consecutive year. 

The lower demand from foreign clients and the competitive pressure from Chinese companies were cited to explain the fewer export orders. 

Many businesses have to ease export prices to compete with Chinese exporters, who have been supported by the weaker yuan.

Though businesses continued recruiting new workers in August, Nikkei noted that the job creation slowed down compared with July.
vietnam still safe from yuan devaluation hinh 0
Commenting about Vietnam’s August PMI, Andrew Harker, economist at Markit, said the Chinese yuan devaluation has affected Vietnam’s manufacturing sector, because Chinese products became more competitive in prices. 

Therefore, domestic manufacturers repeatedly urged the State Bank to devalue the dong sharply to help maintain the export capability.

Meanwhile, the National Finance Supervisory Council, in its report presented at the government’s August meeting, said that Vietnam’s economy would not bear ‘direct’ and ‘big’ influences from the Chinese yuan devaluation.

VnExpress quoted the council’s report as saying that Vietnam will still have the GDP growth rate of 6.2% this year, despite the recent repeated yuan devaluation spells, if the Chinese government will not devalue the yuan further until the end of the year.

However, the council is not sure about Chinese government’s statistics and the commitments about the forex policy.

Therefore, the council said big adjustments should not be made to the current socio-economic development plan right now, but instead keep a close watch over the Chinese economy and its monetary policies.

It said the dong devaluation in August may increase the inflation rate by only 0.2%. An inflation rate of 3% has been predicted for 2015. has quoted a report of ANZ Bank released on August 26 as saying that the consumer confidence index (CCI) decreased by 4.9 points to 133.7 points in August for the second consecutive month.