Low trade deficit raises worries about stagnant production

Low trade deficit raises worries about stagnant production

Though Vietnam always strives to curb the trade deficit, economists have said that the low excess of imports over exports at 58 million dollars in the first seven months of the year should be seen as a worry than a joy.

Vietnam imported 125.92 billion dollars worth of products in the first seven months of the year and exported 62,933 billion dollars worth of products, which means the low trade gap of 58 million dollars.

Prior to that, Vietnam reported a much higher trade deficit of 158 million dollars for the first six months of the year. Especially, the figures are surprisingly lower than that seen in previous years, roughly 10 billion dollars a year.

Trade deficit decrease raises worries

The trade deficit decrease trend was anticipated one month ago, when relevant ministries reviewed the import and export activities in the first half of the year. The decreases show that the measures to curb trade deficit have brought the desired effects. However, experts have pointed out that this is just the “tip of the iceberg”, while in long term, it signals the economic recession.

A lot of Vietnam’s industries have been relying on the materials and machines imported from other countries. Therefore, the decreases in import turnover spells that enterprises did not import materials for their production, which signals the stagnation of the domestic production.

Dr Tran Du Lich, a well-known economist, said he can see the “reverse side of the medal.” “The imports have decreased because enterprises have stopped importing materials for production, the market demand has plummeted, not because of the magic management measures taken by the Ministry of Industry and Trade,” Lich said.

Pham Chi Lan, an economist, also thinks that the reduced trade gap should be seen as a danger rather than good news. The low imports showed the low demand for materials for domestic production. “The figures have reflected the worries about the slow recovery of the national economy,” she said.

The comments by experts completely come in line with the increasingly high inventories statistics released by the Ministry of Planning and Investment.

The long term worries

According to Pham Tat Thang from the Trade Research Institute, an arm of the Ministry of Industry and Trade, Vietnam only strives to cut down the imports of consumer goods. However, consumer imports just account for 9 percent of the total trade gap ever year. The majority of the imports are the materials, machines and technologies that serve domestic production.

Therefore, when the imports decrease, the domestic production would come to a standstill, which would then lead to the decreases in exports. As such, when Vietnam strives to curb trade deficit, this would be an obstacle to export companies.

Economists have given warnings about the GDP growth slowdown. The GDP growth rate was only four percent in the first quarter of 2012, much lower than the same period of the last year (5.57 percent) and 2010 (5.84 percent).

By April 30, 2012, the number of operational businesses had accounted for 71 percent of the registered businesses (463,800/647,600). Other businesses have reportedly stopped operation due to big losses. Of these, 81,929 businesses had got dissolved, 16,075 registered the operation interruption and 85,821 businesses had stopped operation, but had not informed to the management agencies.

In a report released some days ago, ANZ predicted that Vietnam’s trade balance would see deficit again in the last six months of the year, when the government support packages can stimulate the domestic demand which would lead to the increase of imports.

ANZ thinks that the dong/dollar exchange rate would be 21,500 dong per dollar by the end of 2012.

vietnamnet