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Trade gap may shrink first time since 2005, bank says
Vietnam’s trade deficit may narrow this year for the first time since 2005, driven by a surge in sales of imported gold and weaker purchases of foreign goods, DBS Group Holdings Ltd. said.
The trade shortfall may decline to about US$6 billion in 2009 from a record $17.5 billion last year, Irvin Seah, an economist at DBS Bank in Singapore, said in a note. Vietnam hasn’t had a full-year trade surplus since 1992.
“Compared with other regional economies, $6 billion is still a large trade deficit, but in Vietnam’s case it’s part and parcel of being at an early stage of development,” Seah said in a telephone interview Thursday. “If you look at the broader trade picture, there has been an improvement.”
The widening of the deficit last year from $14.1 billion in 2007 and $5.1 billion in the previous 12 months raised concerns about a potential balance-of-payments crisis, DBS, Southeast Asia’s biggest bank, said in Thursday’s note. The improved trade balance is a “relief to policymakers,” Seah wrote.
Vietnam’s export performance is improving, though re-exports of previously imported gold helped boost shipments earlier in the year, Seah wrote. Sales of the metal are unlikely to be maintained for the rest of the year. Vietnam was a major importer of gold in 2008, according to the World Bank.
‘Gold rush’
“The gold rush of 2008 was partly associated with concerns about macroeconomic instability,” the World Bank said in a report this month. “As those concerns receded, and investment opportunities arose in construction and in the stock market, households sold part of their holdings, artificially inflating export turnover.”
Overall Vietnamese exports fell 7 percent through May, according to the General Statistics Office in Hanoi. Vietnamese shipments to the US – the country’s largest market – rose 3 percent through April, making it the only one of the top 30 shippers to the American market to increase exports during the period.
“If you compare Vietnam’s export performance to recent years it’s been disappointing, but compared to the rest of the region, Vietnam has performed much better,” Seah said by telephone. “Vietnam’s exports tend to be basic commodities and essential items, and core consumption of those tend to be more stable than of say, electronic goods.”
The year-to-date trade balance was in surplus until May, when it swung to a $1.1 billion deficit, sparking “jitters on the currency,” according to a May 28 note from Ho Chi Minh City-based fund managers Dragon Capital.
Still, Seah said by telephone that “a $6 billion deficit would be consistent with the economic fundamentals in Vietnam, and shouldn’t by itself put pressure on the dong.”
VIETNAM H1 EXPORTS FALL 10 PERCENT
Vietnam’s trade deficit for the first half of this year will plunge nearly 79 percent from the same period last year to US$3 billion following a drop of 10 percent in exports and a 31.6 percent fall in imports.
The Industry and Trade Ministry estimated that exports hit $27.57 billion in the January to June period, while imports were $30.64 billion. The decline in export revenue was caused by falling prices of Vietnam’s main export products and shrinking demand in key markets such as the US, the European Union and Southeast Asia. Exports in the first half of the year only accounted for 42.7 percent of the whole year’s plan.
The government is expected to release full trade data later this month.
The Industry and Trade Ministry has forecast an annual trade deficit of $10-12 billion, with exports expected to rise 3 percent year-on-year.
It has also reported first-half industrial output rose an estimated 6.2 percent to VND329 trillion ($18.5 billion) while domestic retail sales and services rose 22 percent to VND546.4 trillion.
TN, Reuters, Bloomberg
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