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Economics: Vietnam
Economics – Markets – Strategy
to about 53% (seasonally unadjusted) for just the first quarter of this year. The
27.5% rise in exports was dwarfed by a staggering 70.5% increase in imports.
High oil prices is also aggravating the problem. With oil prices well above USD130/
bbl, the value of crude export rose 46%, but a near doubling in imports of
refined products turned a USD 976mn oil surplus in 2007 to a USD 334mn deficit
Chart 4: Trade deficit exploded
% of nom. GDP, nsa
10
0
-10
-20
-30
-40
-50
0.7
-7.0 -7.9 -7.9
Trade bal / Nom. GDP
Chart 5: Oil balance turned negative
USD mn
1200
1000
800 Oil trade balance
600
400
200
0
-200
-13.0 -15.2 -16.2 -17.5
-52.6
-60
Mar-06 Sep-06 Mar-07 Sep-07 Mar-08
-400
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
The oil balance
turned negative on
the back of high oil
prices
The trade deficit
ballooned to 53%
of GDP in 1Q08
now (Chart 5). Vietnam is a crude oil exporter but imported large quantity of
refined petroleum for domestic consumption. The ballooning oil deficit is not
only causing pain on the trade account but also feeding into inflation. But its
not all about oil. Petroleum imports formed only about 13% of total imports as
of May08. Huge increases were also seen in many other import products, reflecting
the strong domestic investment demand.
With the ongoing trend in Chart 6: Trade & current acc. have deteriorated
both exports and imports,
% of nom. GDP
trade deficit could well register
10
a massive USD 24bn this year
even if we assume an 5
improvement in the trade 0
balance given a weaker
currency (Chart 7). That is
-5
about twice the amount -10
recorded in 2007 and about
-15
29.3% of overall nominal GDP
this year! The current account -20
Current account balance
will likely be dragged down -25
Trade balance
as well. The current account
-30
balance already registered
a shortfall of USD 6.7bn in -35
2007 (based on IMF estimates), 1998 2000 2002 2004 2006 2008f
about 9.4% of nominal GDP
and will likely fall further given the recent trend in the trade account. With the
likelihood of sharp current account outflow, there is risk of a balance of payment
(BOP) shortfall if further deterioration in Vietnam macro stability triggers a reversal
in capital flows. However, with a competitive labour force, large pool of natural
resources and appropriate measures from the government, Vietnam is expected
to remain attractive to foreign investors in the medium term. We believe that a
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