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Korean Peninsula Tension Could Negatively Impact Vietnam Economy

Vietnam and Japan will see a drop in their credit quality should the military conflict on the Korean peninsula come to a head, according to rating agency Moody’s.

Vietnam, being involved in the supply chains of many South Korean companies, is susceptible to economic impact as North Korea’s southern neighbor will likely endure economically as the result of the conflict, reports Nikkei Asian Review. South Korean enterprises that have set up factories in Vietnam seeking cheap labor include Samsung Electronics, LG Electronics, etc.

“Vietnam is the most vulnerable to any disruption to the global supply chain caused by a cessation or weakening of production in South Korea,” said Moody’s senior credit officer Martin Petch.

Vietnam relies substantially on South Korea for intermediate goods, with 20% being imported from the East Asian powerhouse. More than 5% of Vietnam’s gross domestic product also comes from goods exports to South Korea.

“Vietnam’s policymaking institutions would likely face significant challenges in defining and implementing a rapid yet effective response,” Petch told the news source.

The Korean conflict could damage Japan’s economy as well, due to high risk aversion in the country, which will lead to precautionary savings and lower spending. Increased military spending could also put a strain on Japan’s already deteriorating fiscal position.

On the same note, the World Bank warned in its semiannual East Asia and Pacific Economic Update that the otherwise positive economic outlook in the region might be threatened by tensions on the Korean peninsula. The October 4 update marks the first time the World Bank highlighted Pyongyang as a threat in a report.

On September 25, North Korea’s foreign minister claimed that United States President Donald Trump had declared war on the country, a statement that has since been denied by the White House.

[Photo via ABC]

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