ANZ report cites factors that paint a less-concerning picture of Vietnam's trade deficit this year.
ANZ recently released a report on its evaluation of Vietnam’s trade deficit for 2015 and 2016.
The country went into deficit in the first four months of the year, with the report noting some issues in explanation, such as machinery and electronics imports increasing and imports by foreign-owned enterprises surpassing imports of domestic enterprises, which suggest that imports may be inputs for export production. The Purchasing Managers Index (PMI) revealed an increase in new export orders accompanied by increases in work backlogs, while disbursed foreign direct investment (FDI) year-to-date is running at a very firm level; its highest ever in year-to date-terms, at $4.2 billion. The ANZ research team suggested that this is a “good” deterioration.
Vietnam's Trade Performance, April 05 - April 15
Foreign-owned enterprises now account for almost 60 per cent of total imports, compared to 30 per cent in 2009, and its share has been growing since 2012; a time marked by underperformance in domestic consumption. Over the past year the contribution to import growth by foreign-owned enterprises has been almost double that of domestic enterprises. Though importing more, FIEs have also been exporting more, while the opposite has been seen among domestic enterprises.
Import Growth Overtakes Export Growth in 2015
Foreign Enterprises Import more than Domestic Enterprises
ANZ forecasts a narrow trade deficit over the next few years, starting in 2015. The current mix of imports in terms of product and ownership suggests investment-led importation. So long as the FDI profile remains robust, the team still sees the total balance of payments remaining in surplus. In particular, a deficit of 0.5% of GDP in 2015 and 1.0% of GDP in 2016 and a “good” deterioration in the current account deficit gives no real cause for concern among foreign investors regarding asset valuations.