Citigroup has estimated that China’s GDP will decrease 1.3% for every 1% GDP reduction the US suffers because of fewer Chinese exports to the US.

With both giants struggling to cope, Vietnam’s production and export will certainly be affected. When US consumers stop spending, the US will resultantly reduce their imports, from China and elsewhere.

As a result, Chinese goods will become less expensive in the US and will more competitively rival Vietnamese products. Moreover, with China reducing its exports to the US, it will import goods to sell in Vietnam and domestic products will be faced with tougher competition with their Chinese counterparts.

But there is a bright side. Once the US economy recesses, the oil and materials prices for primary industries (cement and steel) will fall as well and help ease domestic inflationary pressure.

FDI attractiveness threatened

Vietnam will also bear direct and indirect influences from the US economic recession in terms of FDI attraction.

In 2007, foreign investors registered $20bil in FDI. However, only $4.6bil worth of registered capital was disbursed this year, 25%. The problem lies in Vietnam’s poor infrastructure.

The situation may become worsened by the fact that domestic products will have to compete with Chinese goods, in both the US and in Vietnam, which may make Vietnam less attractive in the eyes of foreign investors.

Let’s take South Korea, one of biggest investors in Vietnam, for example. South Korean investors mostly invest in producers that deliver to South Korea, China and the US. If these export markets are narrowed, South Korea may stop injecting money into Vietnamese projects.

Immediate action necessary

Nguyen Dinh Bich, an economist from the Trade Research Institute, has warned that Vietnam should be thinking of ways to offset impacts of a US economic recession.

Previously, some individual experts and institutions, including the World Bank, said that Vietnam’s economy will be hit by a US economic recession, but not too significantly. However, Mr. Bich does not agree with these opinions, saying that experts have been looking at the problem through rose-colored spectacles.

Mr. Bich recalled September 11, 2001, when the attacks on the US resulted in Vietnam’s exports falling sharply. At this moment, the General Statistics Office (GSO) is optimistic, saying a recession will not have too big an impact. The GSO forecast that the total export turnover would reach $16bil in 2001 and a growth rate of 10.7% over the previous year.

However, the real export growth rate of the year was much lower, at 3.8% ($1bil lower than the forecast level), equal to 3.05% of GDP. The export reduction made the GDP growth rate lower than forecast, at 6.8% instead of 7.1%.

It is clear that a gloomy global economy may damage Vietnam’s plans to boost exports. Exports to the US will fall, while the country consumes 21.15% of Vietnam’s ‘basket of export items’ of (the figure was only 7.09% in 2001). Also, Vietnam’s export growth will also slow due to the decreases in exports to non-US markets resulting from an expected domino effect.

Mr. Bich believes Vietnam’s economy will bear big influences from the US economic difficulties, as occurred in 2001; and the influences may be more serious now since Vietnam has become more heavily dependent on the global economy.

Mr. Bich also warns that the high inflation rate and the revaluation of the VND due to the high inflow of foreign capital into Vietnam also have bad impacts on Vietnam’s exports, which will result in an economic slowdown.

“Achieving a record growth rate in 2008 may be out of reach if Vietnam does not immediately think of ways to minimize the adverse impacts of a US economic recession,” Mr. Bich said.

Source: TBKTVN, Tuoi tre