European firms’ confidence in Vietnam bounces back

CA - European companies’ confidence in Vietnam’s outlook has rebounded but their sentiment and assessment of the country’s current situation remain somber, the European Chamber of Commerce in Vietnam (EuroCham) said.

In a review of its latest survey among nearly 250 member businesses for the first quarter of 2012, EuroCham commented that their concerns about the country’s current business situation and outlook appeared to have eased slightly.

The EuroCham Business Climate Index (BCI) increased four points to 56 in the first quarter of 2012 after a steep drop of 11 points in the last quarter of 2011, as shown in the quarterly business climate index that EuroCham released on Wednesday.

“The slight increase of the EuroCham BCI survey at 56 points shows a halt in the downward trend in business confidence we have seen in 2011,” EuroCham Chairman Alain Cany said. However, he noted that the business confidence was still far below last year’s level.

“This shows that uncertainty amongst investors remains. Key structural issues have not been resolved such as equitization of state-own enterprises and stabilizing the macroeconomic environment to name two examples,” Cany said.

EuroCham said there was little change in respondents’ assessment of their current business situation compared to its previous survey. A ‘good’ or ‘excellent’ view of their current business situation was held by 36% or respondents, up from 32% of last quarter but still much lower than the 64% around this time last year.

EuroCham saw signs of optimism among its member companies, as reflected in the survey that 39% of the respondents stated a ‘good’ or ‘excellent’ view of Vietnam’s outlook. “This is a 12% increase from last quarter, but is put into perspective by the 72% of respondents that had a positive business outlook this time last year,” EuroCham said in the review report.

But the survey indicated that a quarter of the respondents had a pessimistic outlook for business in the last six month.

“These results are still not decidedly positive, but we can see that the continuous downward slide of business sentiment has halted. Whether companies’ business outlook will stagnate at this level or gradually improve remains to be seen,” EuroCham said.

As a result, European companies are still cautious about investment, though some more businesses plan this. According to the latest survey, 38% of the respondents are planning to increase their investment ‘slightly’ or ‘significantly’ by 10% while 31% want to maintain their level of investment and 24% are thinking of decreasing their investment in Vietnam in the medium-term.

“This shows an easing of the “wait and see” attitude that we have seen in previous quarters. While this is a positive development, this time last year, 67% or respondents were planning more investments in Vietnam”, EuroCham said.

Despite signs of optimism, EuroCham members still hold mixed views about orders and revenue in the medium-term. Fewer companies (27%) expect their number of orders to remain constant than last quarter when this view was shared by 34% of respondents, and more forecast their turnover to fall.

Inflation remains a major concern for EuroCham members, as 53% of the respondents said inflation would have a significant impact on their business and 8% stated that inflation was actually threatening their business in the country.

European businesses still have their eyes on macroeconomic woes in Vietnam although a significant 65% of the respondents expect the difficult situation to further decline while 35% responded the situation would stabilize and gradually improve.

When asked about the link of the crisis in Europe with their companies’ investment decision for Vietnam, 55% stated that the crisis affected them but 44% said that the crisis in Europe did not impact their decision to invest in Vietnam.

To a certain extent, EuroCham Executive Director Matthias Dühn said the European debt crisis had added to investor uncertainty and impacted European investment in Vietnam. He noted European investors were increasingly looking for alternative investment destinations in ASEAN and called for Vietnam to increase its efforts to remain competitive in the region.