Growing trade deficit sparked by input demand

11:13 | 30/03/2015 Trade

Low export growth and rising imports by foreign-invested firms have contributed to Vietnam’s first quarter trade deficit.

Growing trade deficit sparked by input demand

The Ministry of Planning and Investment (MPI) last week reported that trade deficit topped US$1.8 billion in Q1, equivalent to 5% of the total export turnover of US$35.7 billion.

While export grew just 6.9% on-year in Q1 compared to 14.1% one year earlier, import rose 16.3% to US$37.5 billion against the 12.4% in Q1 last year.

Experts at last week’s MPI meeting on Vietnam’s Q1 economic situation said that Vietnam’s trade deficit reflected low export growth, in addition to production rebound primarily characterised by an increase in imports by foreign enterprises.

According to a Ministry of Industry and Trade representative, one of the major reasons behind such a deficit was that Vietnam’s first quarter export growth was hindered by an average 30% drop in export prices of about 15 export-oriented staples.

For example, Vietnam exported more than one million tonnes of crude oil, up 34.8% in quantity but down 31.2% in value.

Meanwhile, coffee export value fell 37.3%, aquatic products 20.6%, and coal 64.3%. Garment and textile exports, which are Vietnam’s second biggest export earner, increased only 8.9% in value term but far lower than 16.6% in Q1, 2014.

Meanwhile, according to the MPI, foreign invested enterprises (FIEs) spent US$23.1 billion on imports in Q1, up 24.1% on-year and accounting for 61.1% of the country’s total import turnover.

Domestic enterprises registered import turnover of US$14.4 billion, showing just a 5.7% rise.

The potential positive effects of free trade agreements with the EU, the Republic of Korea (RoK), Customs Union (Russia, Belarus and Kazakhstan) and the Trans-Pacific Partnership (TPP) have also been cited as a reason behind the trade deficit.

“During our recent meetings with investors from the US, EU, the RoK and Japan, they said they would shift their investments from China to Vietnam to benefit from these FTAs, which are characterised by slashed import tariffs,” said Nguyen Van Toan, vice chairman of the Vietnam Association of Foreign-invested Enterprises.

“More imports will be seen from FIEs. There will be more disbursed and committed foreign direct investment this year. Many major foreign groups have also come to Vietnam to expand production in anticipation of the FTAs, contributing to a rise in Vietnam’s import volume,” he explained./.

Theo VOV