Vietnam – Is a ‘good’ or ‘bad’ deficit coming?

HO CHI MINH CITY – ANZ Bank in a research note says it is now of the view that a persistent return to trade deficits – dragging the current account into full year deficit – seems inevitable in Vietnam for 2015 and 2016.

“Over the past four months the Vietnamese trade balance has been in deficit with import growth – at 19.4% ytd y/y in April – running double the growth rate of exports,” ANZ says.
“The last instance that import growth outstripped export growth over an extended period of time, the 12-month trade deficit reached almost USD18 billion in 2010.
“Are this year’s recent trade numbers foreshadowing a return of massive trade deficits and a bad current account deficit? We don’t think so. At this stage, we would assess the coming deterioration in the Vietnamese trade balance as ‘good’.”
The report says:
• Growth of machinery and electronics imports in Vietnam has been driving much of the recent surge in total imports.
• Imports by foreign-owned enterprises surpass imports of domestic-owned enterprises, suggesting imports are inputs for export production.
• PMI numbers show an increase in new export orders accompanied by increases in backlog work.
• Disbursed FDI year to date is running at a very firm level, indeed it is the highest ever in ytd terms at USD4.2bn.
“The overall impression we are left with, then,” ANZ says, “is that a ‘good’ deterioration in the current account is currently playing out in Vietnam.
ÄNZ is forecasting a narrow trade deficit for Vietnam over the next few years starting in 2015. “The current mix of imports in terms of product and ownership suggest an investment-led importation. So long as the FDI profile is robust, we see the total balance of payments remaining in surplus.” www.live.anz.com (ATI).