Vietnam to benefit from global trends towards trade surplus

A major trade surplus in the first eight months of the year and positive impacts from trade pacts are forecasted to enable Vietnam to continue enjoying a trade achievement this year.

A high trade surplus since early this year plus positive impacts from FTAs promise bright trade for Vietnam this year.
A high trade surplus since early this year plus positive impacts from FTAs promise bright trade for Vietnam this year.

The government has reported that in the first eight months of 2019, the economy enjoyed a US$3.4 billion trade surplus, with total export turnover of US$170 billion – up 7.3% year-on-year, in which the export turnover of domestic and foreign enterprises rose 13.9% and 4.6%, respectively. Notably, Vietnamese enterprises account for 30.6% of the economy’s total export turnover.

Meanwhile, in the first eight months of this year, the country’s total import turnover hit US$166.6 billion, up 8.5%, with a year-on-year rise many types of goods imported and used for local production, such as electronics, computers and their spare parts (US$33.6 billion – accounting for 20.2% of the economy’s total import turnover and up 21%), machinery and equipment (US$24 billion, up 12,9%), cloth (US$8.8 billion, up 4.8%), plastics (US$6 billion, up 2%), and automobiles (US$4.9 billion, up 60.3%).

“From now to the year’s end, we will have more opportunities to boost exports thanks to positive impacts from free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA),” Minister of Planning and Investment Nguyen Chi Dung told the government at a recent conference between the government and localities on Vietnam’s socio-economic development organised in Hanoi.

“These pacts have helped further strengthen the confidence of investors and enterprises in conducting business and production in Vietnam, especially in the manufacturing and processing sector, creating a firm impetus for enterprises to boost exports and for the whole economy to reap bigger trade growth, including a big trade surplus in 2019,” he stated.

Last week, Trading Economics, a global provider of economic indicators, released its fresh econometric calculation that Vietnam may reap a big trade surplus this year.

“Looking forward, we estimate balance of trade in Vietnam to stand at US$2 billion in 12 months’ time. In the long-term, the figure is projected to trend around US$1.6 billion in 2020, according to our econometric models,” the firm said.

Meanwhile, Spanish-based FocusEconomics, which provides in-depth global economic analysis, attributed the trade surplus to a rise in industrial production and exports thanks to boosted exports fuelled by FTAs, despite weaker global demand.

FocusEconomics stated that industrial output growth will remain elevated going forward, spearheaded by a burgeoning manufacturing industry. Vietnam is an attractive low-cost base for manufacturing businesses, including those looking to relocate from China due to the US-China trade conflict.

“FocusEconomics Consensus Forecast participants estimate that industrial output will grow 9.1% in 2019, which is up 0.2 percent from last month’s forecast. For 2020, panelists expect industrial production to expand 9.0%,” FocusEconomics stated in a bulletin sent to Nhan Dan Online.

Last year, the Vietnamese economy reaped a high trade surplus of US$7.21 billion despite the US-China war dampening global demand.

Notably, over the past year, while the US and China, which are the largest export markets of Vietnam, have been engaging in duelling import tariff impositions, Vietnam’s exports to the US market remain on an uptrend and those to China have slightly decreased.

Specifically, in the first eight months of 2019, total export turnover from the US, which is the largest purchaser, was US$38.6 billion, up 25.3% year-on-year, and that from China, which is the third largest buyer, totalled US$23.8 billion, down 2.5% year-on-year.

“Given the recent trade war between China and the US, alongside Vietnam’s recent ratification of the CPTPP, and the signing of the EVFTA, the country is steadily becoming more open to international trade and investment,” commented Kyssha Mah, an analyst from pan-Asia consulting firm Dezan Shira & Associates.

According to Mah, located in a strategic position for foreign companies with operations throughout Southeast Asia, Vietnam is an ideal export hub to reach other regional markets.

Compared with other developing markets in the region, Vietnam is emerging as the clear leader in low-cost manufacturing and sourcing, with the country’s manufacturing sector accounting for 25% of Vietnam’s total GDP.

Currently, labour costs in Vietnam are 50% of those in China and around 40% of those reported in Thailand and the Philippines. With Vietnam’s workforce growing annually, local workers are inexpensive, young, and increasingly highly skilled.