Vietnam had smallest trade deficit this year in May

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Vietnam posted its smallest trade deficit this year as the global economic rebound and a weaker currency spurred demand for the nation's clothes and shoes.

The trade gap narrowed 35 percent to US$750 million this month from a revised $1.16 billion in April, based on preliminary figures released Tuesday by the General Statistics Office in Hanoi. That brings the deficit for the year to $5.38 billion, more than four times the shortfall of $1.1 billion for the same period in 2009.

Exports jumped 12.6 percent in the first five months of 2010 to $25.8 billion from a year earlier after two devaluations in the dong since late 2009 made Vietnamese goods more competitive. Asian economies have benefited from an export rebound that's helped lift growth from Singapore to Taiwan as the region leads the recovery from last year's global slump.

"Today's trade numbers suggest an improving external picture," Paul Gruenwald, the Singapore-based chief Asia economist for Australia & New Zealand Banking Group Ltd., said in a note. "Exports are picking up, which is heartening given that Vietnam has lagged the export recovery in the rest of the region. The trade balance outturn is positive as well, which should take some pressure off the currency."

May exports totaled $6.1 billion, up from a revised $5.33 billion in April, the report showed today.

"Vietnamese exports should continue to perform," Nagesh Kumar, the Bangkok-based chief economist for the United Nations Economic and Social Commission for Asia and the Pacific, said before today's report. "The weaker dong is also helping Vietnam's exports by making them more competitive."

The rebound from the global recession has bolstered overseas demand for Vietnam-made shoes, according to the Vietnam Leather and Footwear Association. Footwear is the nation's third-biggest export after garments and crude oil.

Vietnam upswing

"The main reason for the increase in footwear exports this year is that the global economy is recovering," said Diep Thanh Kiet, Ho Chi Minh City-based vice chairman of the association. "Most of the increase is from the American market."

May imports were $6.85 billion, up from a revised $6.49 billion in April. Purchases climbed 29.8 percent through May from the same time a year earlier to $31.2 billion.

"Vietnam's upswing has lifted imports," Kevin Grice, a London-based economist at Capital Economics Ltd., said in a May 24 note. Vietnam's economy expanded 5.8 percent in the first quarter, up from 3.1 percent in the same period a year earlier and accelerating from a full-year growth rate of 5.3 percent in 2009.

Vietnam's government devalued the currency in November and again in February. The dong is currently trading at about 18,990 per dollar, compared with 18,479 at the end of 2009.

A weaker currency "looks warranted to help support growth in gross domestic product and to narrow the merchandise trade deficit," Grice said.

The trade deficit in recent months had been "lingering" at more than $1 billion per month even amid higher interest rates, suggesting that a resumption in foreign investment is driving imports, Ho Chi Minh City-based fund manager Dragon Capital said this month. Vietnam still has to import raw materials for many of its export industries.

"Most of the growth in footwear exports now is from foreign-invested companies," said the footwear association's Kiet. "Local companies are generally smaller with not much capital, and the volumes required by U.S. buyers are too big for them."

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