The UK’s decision to withdraw from the European Union (EU), known as Brexit, will deliver the weakest blow to Vietnam among emerging Asian countries, ANZ has said in a report released Monday.
“[Vietnam’s] structural changes to its export product mix to the EU mean that Vietnam will continue to report positive growth, albeit at a lower rate,” says the report.
The EU is Vietnam’s second largest export market reaching 19.2% in 2015. It is also the number one destination for several of Vietnam’s key exports. Of the $162 billion total export turnover in 2015, around 2.9% was shipped to the UK.
Among the countries in Emerging Asia, only Vietnam reported an increase in the share of its export exposure to the EU over the last decade given that the products of the EU and Vietnam are strongly complimentary.
As an FDI magnet, Vietnam rapidly changed its export product mix. However, the cumulative FDI from the EU is only 5.3% of registered FDI in Vietnam. Twenty five EU member states now have FDI projects in Vietnam, with the Netherlands in the lead.
In terms of the share of the EU in the countries’ cumulative FDI, Vietnam ranks in the lower part with 1.2% of GDP, just above Malaysia and the Philippines.
Trade relations with the EU are expected to strengthen further after the negotiations for the EU-Vietnam FTA were completed in December 2015. The agreement is expected to be ratified by the remaining members of the EU by early 2018.
EU market access will greatly benefit the textile apparel and footwear industry, as well as agricultural products like rice and fish. On the other hand, almost all EU exports of machinery and appliances will be fully liberalized once the FTA comes into force.
The ambitious EU-Vietnam FTA took 44 months of negotiations before the text of the FTA was published. The UK will likely need to face a similar timeline to sell its capital goods duty-free to the country.
ANZ has forecast Vietnam's consumer price index (CPI) to increase 2% this year and 2.7% in 2017. The USD/VND rate is put at 22,750 this year and 23,400 next year.