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Vietnam’s export challenges may widen its trade deficit

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Inside Honda’s factory in Ha Nam, Vietnam. The VCCI’s dialogue mentioned cooperation between Japan and Vietnam in many areas, including machinery and automobile supporting industries. TIN MOI/VIET NAM NEWS

Vietnam’s export challenges may widen its trade deficit

According to the Vietnamese Ministry of Industry and Trade’s assessment, import demand this year will increase because exports are expected to continue growing in sectors where Vietnam still depends on import materials, machines, equipment and spare parts.

The trade deficit will be a big challenge for the economy this year due to tax incentives the lower the price of imported goods on the Vietnamese market.

According to preliminary statistics of the General Department of Customs published recently, the nation’s export turnover reached $20 billion in the first month of this year, down 1.3 per cent year-on-year, while imports reached nearly $20.8 billion, an increase of 3.1 per cent.

The trade deficit occurred because, at the same time as export turnover was down the from same period last year, demand for imported goods increased in both quantity and value ahead of the Lunar New Year.

Trade surplus not maintained

These figures agree with the forecast released a few days ago by the Ministry of Industry and Trade (MoIT), which said the trade surplus will not be maintained this year due to many visible difficulties. Instead of continuing the record-breaking trade surplus seen in 2017 and last year, the country’s exports may reverse.

Export turnover this year is expected to reach about $265 billion, up by eight to 10 per cent from last year. The import is about $268 billion, up by 11.7 per cent. Trade deficit is estimated at $3 billion.

In January, the export value of key products sharply reduced. Exports of phones and devices were down 27.5 per cent to $2.9 billion, and electronics and computers decreased by five per cent to $2.3 billion. Meanwhile, import value increased for machines, equipment, parts and tools, which were up 3.8 per cent to $3 billion.

According to MoIT assessment, import demand this year will increase because exports are expected to continue growing in sectors where Vietnam still depends on import materials, machines, equipment and spare parts.

Free trade agreements

This year, the implementation of free trade agreements and major agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA) will create a new wave of investment in Vietnam by domestic and foreign businesses looking to take advantage of new opportunities. Therefore, imports of machinery and equipment for projects and purchases of materials for production will increase. This will lead to a reversal of the trade balance from a surplus to a deficit.

Minister of Agriculture and Rural Development Nguyen Xuan Cuong said that last year was a fruitful year for both the industry and agriculture sectors. The year saw a record $245 billion in export value in the context of declining exports worldwide.

Cuong said with the shifting production structure of the economy, the 2018 surplus of $7.2 billion was a very big number for Vietnam’s economy. However, the forecast for this year indicated it will be a very difficult year.

Vietnam National Garment and Textile Group (Vinatex) managing director Cao Huu Hieu told Tien Phong (Vanguard) Newspaper that the growth of the textile and garment industry would be unpredictable this year.

“With the trade war, if there is a 15 per cent tax increase, the competition on the market will be very fierce,” Hieu said.

In the face of the situation, Vinatex has to adjust its targets to a growth rate of eight to nine per cent.

“The target for export revenue is about $40 billion,” Hieu said. “We also have to look directly at things that cannot grow forever. We must accept there are years without growth. India and Bangladesh having negative growth in 2018 are lessons for us. In 2019, Vinatex will not expand investment but is focused on intensive investment, replacing machines according to periodic plans.”

Speaking about export challenges at a recent conference on implementing the 2019 mission, Prime Minister Nguyen Xuan Phuc said if the MoIT did not institute a breakthrough policy for industrialisation and attract more capital from multinational corporations in various fields, Vietnam’s economy would face a lot of difficulties this year. VIET NAM NEWS/ASIA NEWS NETWORK

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