Vietnam’s Currency Moves Again
Moving Products and Currencies
Figures from Vietnam show the economy is continuing to improve quarter on quarter. Gross domestic product (GDP) rose 6.44 percent in Q2 from a year earlier, up from a revised 6.08 percent in Q1 of 2015. The figures released by the statistics office in Hanoi earlier this month indicate that this rate is Vietnam’s fastest GDP growth rate since 2008. The up and coming manufacturing nation continues to increase its attractiveness to Western buyers with low cost labor and improving technologies in many factories throughout the country.
In order to increase this attractiveness, the Vietnamese Central Bank and government devalued the Vietnamese Dong (VND) for a more favorable exchange rate with buyers. Devaluing a nation’s currency has been most recently used by the People’s Bank of China as mentioned in earlier articles by ET2C. This economic measure allows Vietnamese products to appear cheaper through exchange rates and therefore more enticing to export partners who can now buy more products at a lowered cost. The central bank felt this extreme measure was absolutely necessary as exports were expanding at the slowest pace in the first months of this year since 2010. It appears these efforts are working in light of the positive economic news. Hunyh The Du, academic director of the Fullbright Economics Teaching Program in Ho Chi Minh City said “The dong devaluation has definitely helped exports and that drove economic growth,” while stating that “companies are doing better, as the business environment has improved.”
Better Trade through a Weaker VND
Exports increased 9.3 percent in the past six months through June from the same period a year earlier, which shows that this has aided exporters at the margin while continuing to support the country’s economic growth. Reports also showed that Vietnam’s factory production increased to a new record last month, which has carried a positive on HSBC’s purchasing manager index every month since 2013. Production costs are also dropping, as falling commodity prices in world markets continue to give lower input costs for manufacturers in Vietnam. With this, Vietnamese firms are securing more new orders from both domestic and export clients in this growing economy.
Vietnam- US bilateral trade currently stands at $40 billion up from $450 million in 1995. This dramatic increase is due to the low wages of Vietnamese workers, which are around $197 a month, combined with a young and urbanizing workforce. The country’s manufacturing potential and strength is set to increase by a staggering 30 percent once the Trans-Pacific Partnership, a free trade deal with 12 other trade partners, comes into fruition later this year. Until then, it seems that the Vietnamese factories will continue to grow and mature the South-East Asian nation into a manufacturing powerhouse. Feel free to contact ET2C today if you are looking to capture a part of Vietnam’s rising manufacturing capabilities while saving on costs from the undervalued VND.