Vietnam reports trade gap as import gain signals improved demand

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Vietnam's trade balance swung to a deficit in May as imports rose in a sign that domestic demand may be improving as officials try to revive the economy.

The deficit in May was $700 million, compared with a revised surplus of $3 million in April, according to preliminary figures released today by the General Statistics Office in Hanoi. Imports climbed to $9.8 billion from a revised $8.96 billion last month, it said. The trade shortfall in the first five months of 2012 was $622 million.

Vietnam has joined Asian nations from the Philippines to India in cutting interest rates this year to boost spending at home as Europe's debt crisis threatens global growth. The nation's economy expanded 4 percent last quarter from a year earlier, the least since 2009, while a report yesterday showed inflation eased to a 21-month low of 8.34 percent in May.

"Imports were weak in the first months of the year, so if they're reviving now, it is a sign that the economy is picking up," Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase & Co., said before the release. "A trade deficit is not a problem for Vietnam as long as they have the capital flows to finance it, which at these levels they do."

The benchmark VN Index of stocks has surged about 24 percent this year on speculation that steps ranging from cuts in policy interest rates to lower taxes and reductions in fuel prices will aid economic growth. The dong has strengthened about 0.9 percent against the dollar in the same period.

Dong support

"We've seen an increase in Vietnam's foreign-exchange reserves, which allows policymakers to defend the level of the currency," said Sukhy Ubhi, a London-based economist at Capital Economics Ltd.

Vietnam's economy is stabilizing after a prolonged period of "heightened turbulence," the World Bank said two days ago. At the same time, unresolved problems in the banking industry remain a concern, and economic expansion may slow to 5.7 percent this year from 5.9 percent in 2011, it said.

Asian nations also face threats to exports from Europe's protracted woes. The Organization for Economic Cooperation and Development said May 22 that the crisis in Europe risks spiraling and seriously damaging the world economy.

The State Bank of Vietnam has lowered its refinancing and repurchase rates this year to bolster lending. It raised them in late 2010 and in 2011 as part of a push to tame inflation, which last year climbed as high as 23 percent. An increase in commercial lending rates contributed to the slowdown in growth.

For the first five months of the year, imports increased 6.6 percent to $43.48 billion, today's report showed.

Exports rose to $9.1 billion in May from a revised $8.96 billion in April, according to the data. For the five months through May, overseas shipments increased 24.1 percent to $42.86 billion.

"Imports are generally a sign of economic activity," said Le Anh Tu Packard, a West Chester, Pennsylvania-based economist at Moody's Analytics. "If you're importing intermediate goods, you're using them to produce either for domestic consumption or for exports."

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