What an EU Free-Trade Deal Could Mean for Vietnam

While observers worry about possible government intervention in the consumer markets if inflation becomes an issue, Vietnam could potentially strike a free-trade deal that could open up markets and benefit Vietnam’s ETF.

In Vietnam, Tet, or lunar new year holiday, helped push the consumer-price index up to 2% in February, according to The Economist.

Before Tet, the Central Bank devalued the Vietnamese currency, the dong, by 3.4% in an attempt to get holders of the dollar to buy it. Vietnam may have spent more than $1 billion, over 1% of GDP, in 2009 to buttress its economy, and the credit supply expanded 37%, which increased the black-market price of dollars.

Observers will be closely watching March’s inflation data for evidence of whether February’s increase was holiday-driven. Foreign businesses are worried about the government’s response if inflation were to take off – the finance ministry has been hinting at a draft decree that would allow it impose price controls on a range of essential goods.

The European Union and Vietnam announced the start of free-trade negotiations that would allow the E.U. access to Vietnam’s booming markets and provide Vietnam a chance to lure European manufacturers away from China, report John W. Miller and Patrick Barta for The Wall Street Journal. However, the E.U.-Vietnam trade talks may be hindered by protectionist sentiment and human-rights concerns in Europe.

Vietnam’s top exports are textiles, shoes, seafood and coffee, and a free-trade deal could give Vietnam the potential to grow beyond that.

Vietnam’s General Statistics Office expects economic growth to accelerate between 5.7% and 5.9% in the first quarter year-over-year. A free-trade deal could mean even more.

(Tom Lydon – seekingalpha.com)

Tags: Vietnam EU free trade agreement, Vietnam EU FTA