EU Trade Deal Signed; Town Quarantined
/Two quick stories today:
The EU ratified the free trade agreement with Vietnam (EVFTA).
This leaves just one last hurdle - ratification by the Vietnam Assembly. A few things about this:
SOURCE: VIETNAMESE CUSTOMS, CHARTS BY VIETECON.COM
Tariffs will start to trend down, with 65% of all products becoming tariff free this year. The rest over a 10 year time frame. Unfortunately, wine won’t come down for a while!
“As per the Ministry of Planning and Investment, the FTA is expected to help increase Vietnam’s GDP by 4.6 percent and its exports to the EU by 42.7 percent by 2025. While the European Commission has forecast the EU’s GDP to increase by US$29.5 billion by 2035.”
These economic gains are fairly minimal (remember that the country is growing almost 7% a year, so adding 4.6% growth to that over 5 years isn’t that exciting), but the export gains are sizeable. I do wonder if imports will eat into that, as the Vietnamese get richer and are interested in buying high quality goods from Europe.
The UK is currently included in this FTA, I assume, but by the end of the year, it will be out. This deal took forever to do, and while the UK-VFTA will probably go faster, it won’t be immediate. The UK is the 9th largest export market for Vietnam (2019) at $5.8bn. This is more a missed opportunity than anything else, for both Vietnam and the UK.
As part of the FTA, there is an investment protection agreement, which was also passed by the EU parliament. But it actually has to be passed by all the EU member states before it can ratified. So we are unlikely to see that go into effect for a while.
The Deputy Minister of Industry and Trade says that the agreement can take effect as soon as July 1.
Vietnam locks down a whole village over COVID-19
The authorities have quarantined a whole village (Son Loi commune) in Vinh Phuc province. It’s close to Hanoi, but also not that far from the Chinese border. Six cases of COVID-19 were found in the village, and so the government just shut it down.
The quarantine will be in place for 20 days.
I don’t have much to say about this except that I feel for the 10,000 people stuck in a town with COVID-19 floating around.
Also comment: the stock markets are doing fine, despite the virus outbreak. This seems crazy to me. I just think that the impact is going to be much more severe than the markets are pricing in.
Take China: Consensus is for 5.8% real GDP growth this year, down from the previous estimate of 5.9% last month. Only a 10bp decrease, despite the country basically being closed for a month. You would think it would be at least 1/12th of the growth figure. And the government still vows to meet its about 6% goal for the year. This seems highly unlikely, unless there is a massive stimulus when the virus is contained.
Sure, the long term impact will likely be minimal, but in the short term, lots of companies and consumers are going to be stressed. There is this stat that 60% of American millennials don’t have enough money to cover a $1,000 emergency. Sure, the Chinese are better at saving than American kids, but some of them must really be hurting now. How do they pay for food? Rent? Buy things? If no one is buying anything, then there can’t be GDP.
To be fair, SARS didn’t really affect the Chinese economy, at all. You can’t even see it in the chart of Chinese economic growth. Maybe COVID-19 will have the same non-impact.
Anyway, I hope that Vietnam is able to contain the virus. And if it does, then in the medium-term it might get a pop from manufacturers diversifying away from China.