Vietnam's trade deficit: A signal of strength

The growth indicates higher economic activity and an increase in the capacity of the economy to produce goods and services according to economists from Vietnam Customs, who compiled and released the figures.

Foreign direct investment (FDI) disbursements throughout the nation continue to increase – principally in the manufacturing sector – and as that happens then imports of machinery, equipment and construction related materials are inevitably bound to rise and add to the trade deficit.

While the increased deficit has led some leading experts to warn that the chronic gap between imports and exports remains an open wound in the nation’s generally improving economy, Vietnam Customs brushed those concerns aside.

“As a nation we import basically everything,” said Vietnam Customs in its latest report.

“When you see an increase in the deficit, that definitely indicates something is happening in the economy,” the report said, pointing to increases in construction material imports and machinery and equipment showing more building activity in the country.

The Vietnam Customs report shows that during the period from January-June the nation’s total goods and service trade jumped 13% on-year to US$158.61 billion with exports tallying in at US77.77 billion (up 9.3%) and imports at US$80.84 billion (up 16.7%).

Most significantly the report shows that 63.5% of the nation’s total trade of US$158.61 billion (or US$100.71 billion) was directly attributable to FDI invested companies, which represents a 22% hike compared to the first six months of 2014.

In its report,Vietnam Customs said this deficit really shouldn’t be surprising as it’s connected with the patent need by FDI companies to import materials and equipment to construct manufacturing facilities and build-up inventories in Vietnam.

“It has also been long forecasted,” the report added.

Vietnam Customs has forecast large deficits throughout 2015 and 2016 saying they are inevitable and nothing to worry about so long as overseas orders of products start picking up steam by late 2015.

The nation’s total domestic goods and services trade during the six month period tabulated to just US$57.90 billion and that definitely shows weakness and lack of competitiveness by domestic businesses.

In addition, all of the recent business surveys reveal that approximately 90.3% of all businesses currently operating in Vietnam are bullish on the number of new export orders increasing in the latter part of 2015, Vietnam Customs underscored.

FDI invested companies are the most sanguine as a hefty 51.3% of them predict the number of overseas orders will fly sky high by the end of the year with only 8.6% forecasting the figure will decline.

The Ministry of Industry and Trade (MoIT) is also upbeat on the good news and forecast export revenues will hit a record setting US$165 billion by the end of this year, noting that exports have already reached US$77.77 billion, equivalent to 47% of the year’s target.