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ANZ: Vietnam trade deficit re-emerges   2009-09-09 - VietNamNet/SGT

From a surplus in the first quarter of this year, Vietnam’s trade balance has deteriorated with imports beginning to recover and exports still weak, thus restraining economic growth, according to a latest report by ANZ.

The report done by the bank’s economics and markets research team and issued by early this month says the country’s August trade deficit was US$1.75 billion, the highest since May 2008, although it is still far from the imbalances in the second quarter of 2008.

The report said that like elsewhere in Asia, Vietnam exports had declined sharply since late last year. Shipments of August fell by 18.9% year-on-year. On the other hand, the country’s import growth turned positive in August for the first time in 10 months, rising 5.1% year-on-year.

Over the past month, pressures on the local currency have re-emerged, with the Vietnam dong 12-month Non-Deliverable-Forward trading, the overseas NDF market for currencies which could not freely exchange, at almost VND19,500 per U.S. dollar, some 10% weaker than spot.

The report says the country’s external financing has ebbed and this is a worrisome combination for Vietnam. The main financing items for Vietnam’s current account are foreign direct investment (FDI) and portfolio flows.

Weak economic performance in source markets as well as investors’ inability to hedge longer-term Vietnam dong exposure have led to a decline in FDI disbursements by 22.5% through July to US$4.6 billion, and pledges of FDI this year to date have fallen by over 80% to US$10.1 billion.

Inflation has also emerged as an issue for Vietnam, according to the ANZ report. “While year-on-year inflation has fallen from a peak of 27.9% in September 2008 to 2% in August, price pressures have begun to rise.

“Indeed, the decline in the year-on-year rate has almost certainly ended since the large monthly spikes in the middle of 2008 have fallen out of the data.”

On a shorter-term basis consumer prices have been picking up 5% to 6% on an annual basis for the past few months. Modest price pressures are likely to continue. As inflation rises, real interest rates will fall, thus stimulating demand, including for imports, said ANZ.

The report concludes that Vietnam should be able to outperform some of emerging Asian economies given its command structure, but not to recover at the pace seen in China.

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