What is Vietnam’s trade balance outlook in 2H2021?

In June 2021, exports continued to rise by 20.4% YoY and expanded by 3.9% MoM to USD27.2bn. Meanwhile, import growth moderated to 34.3% YoY and slightly dropped by 2.1% mom to USD27.7bn. June’s trade deficit was estimated at USD455mn, down from USD2.1bn in May 2021. 

In 1H2021, total exports and imports were up 29.1% YoY and 36.4% YoY, respectively. Vietnam’s trade deficit was USD930mn vs. a trade surplus of USD5.9bn in the same period last year.

The negative impact of COVID-19

The latest Covid-19 resurgence has negatively affected domestic manufacturing activities, especially factory operations in the South of Vietnam. As a result, the trade outlook showed signs of faltering at the beginning of 2H2021 as authorities imposed drastic restrictions to contain the pandemic. Last month, the outbreak hit industrial factories in the northern provinces, electronics, and tech companies tried to maintain their operations with minimum staff and keep workers inside the work site. 

However, industrial clusters in the South found them difficult to operate under the three on-site model, especially in the textile and footwear industry. According to media, more than 90% of 800 members of Vietnam’s Leather Footwear and Handbag Association have temporarily halted operations while more than 97% of textile-garment producers in the South had to suspend their operations. In the first half of Jul 2021, exports of tech products contracted by 7.2% YoY. Exports of textile, footwear products still grew by 25.6% YoY in the first half of the month but VDSC believed a prolonged suspension of factory operations would deteriorate Vietnam’s trade outlook in the upcoming time.

Exports of textile, footwear products grew by 25.6% YoY in 1H2021. Photo: Quoc Tuan

Base effect to be faded

In VDSC’s view, export growth of some key products narrowed as the base effect eased in June 2021. Exports of textile, footwear, and machinery products grew by 28.7% YoY and 24.0% YoY, down from an increase of 45.5% and 48.0% YoY in May 2021, respectively. Exports of electronic products decreased by 1.3% YoY vs. an increase of 20.2% YoY in May 2021. 

Meanwhile, exports of agriculture products were still positive with a rise of 14.4% YoY, exports of wooden and metal products remained robust, gaining by 62.2% YoY and 91.6% YoY, respectively. By key markets, Vietnam's exports to the US continued to expand in Jun 2021, recorded a growth of 44.7% YoY in 1H2021, down from 49.1% YoY in 5M2021. Exports to EU narrowed its growth to 18.0% YoY in 1H2021 from 21.4% YoY in 5M2021. Although the pandemic is spreading across ASEAN countries, exports to ASEAN continued to expand in Jun 2021, grew by 28.0% YoY in 1H2021 vs. a gain of 23.9% YoY in 5M2021. Exports to China narrowed from a rise of 27.0% YoY in 5M2021 to 24.8% in 1H2021.

The insignificant trade deficit in 2H2021

In 1H2021, the highest import growth rates were seen in China (52.2% YoY) and ASEAN (50.5% YoY). Imports from the EU also recorded a strong growth of 23.9% YoY due to the implementation of EVFTA. Import growth narrowed from a gain of 36.8% YoY in 5M2021 to 36.3% in 1H2021. 

VDSC expected that import growth momentum would continue to decline due to weaker domestic demand. In June 2021, imports of consumption goods increased by 39.9% YoY, followed by robust growth of 60.5% YoY last month. Imports of intermediate inputs for garment and electronics rose by 20.1% YoY vs. an increase of 43.5% YoY last month. “The latest outbreak is expected to affect negatively on both consumer demand and input demand for manufacturing activities, as a result, trade deficit in 2H2021 would be insignificant despite higher import prices”, VDSC forecasted.