Vietnam trade deficit likely to widen in June to USD230 mln, says DBS Bank

Vietnam trade deficit, due on June 29 is expected to continue to widen and the consensus is expecting a trade deficit of USD230 million. If that happens, it’ll bring overall trade deficit for the first six months of the year to about USD2.38 billion, down sharply from a surplus of USD1.29 billion in the same period last year.

Specifically, the surge in domestic consumption and exports have led to greater imports. Import growth is running at much faster speed compared to exports. For example, a significant portion of the parts and components used in electronics manufacturing are imported. The local value-added in the manufacturing process is not significant.

Coupled with domestic spending on imported consumer goods, there has been a deterioration in the trade balance. While expectation is that this will narrow towards the latter part of the year with the shipments from Samsung’s new Galaxy S8 phone, there could be further drag from policy decision.

"While the economy enjoys strong inflows of foreign direct investment (FDI), which will help to buffer against any downside in the current account, this component tends to be volatile and FDI inflows in the first five months of the year is also 11.4 percent lower than the same period last year. In short, the BoP will be under pressure this year. A smaller surplus of USD1.8 billion in 2017 is expected, down from USD8.4 billion previously," DBS Bank commented in its latest research report.