Business confidence and outlook among European businesses in Vietnam has fallen to an all-time low, according to results of the eighth quarterly EuroCham Business Climate Index (BCI) survey released on Thursday.
The survey, conducted in July 2012, shows the index dropped 5 points further to 48, indicating a declining confidence in Vietnam as an investment destination, according to EuroCham Chair Preben Hjortlund.
“For the first time since we started this survey in the third quarter of 2010, the index has dropped below the mid-point of 50 pointing towards an overall negative business sentiment,” says the chair in a written announcement.
EuroCham members that participated in the survey expressed an increasing concern about their current business situation and outlook as well as the overall macroeconomic outlook in Vietnam. Some 38 percent of the surveyed businesses are active in the services industry, about 30 percent in manufacturing and the rest in trading or other activities.
The percentage of respondents assessing their current business situation as ‘good’ has fallen from 34 percent in the previous quarter to 29 percent now, and down from 43 percent one year ago.
Only one percent of respondents described their current situation as ‘excellent’. The neutral assessment of the current situation remained constant at around 30 percent.
Meanwhile, the number of businesses viewing their current business situation ‘very poor’ has increased by ten points, with 39 percent of respondents having a negative view of their current situation.
EuroCham says that they can see a negative trend in companies’ business outlook, when only 31 percent stated a ‘good’ or ‘excellent’ outlook, down from 38 percent last quarter and a significant drop from the 42 percent of respondents that had a positive business outlook in the second quarter of 2011.
The shift has been towards a negative outlook with 31 percent assessing their business outlook as ‘not good’ or ‘very poor’. One year ago, only 20 percent of respondents had such a negative outlook.
“Despite some progress on inflation there is a torrent or new and ongoing issues that are eroding confidence in the business environment in Vietnam: macroeconomic troubles, lack of adequate infrastructure and administrative burdens,” said EuroCham Executive director Paul Jewell.
Worry about orders, lower investment
When asked about their expected number of orders and revenue in the medium-term, the answers were mixed.
Some 45 percent of companies expect revenue to increase, down from 58 percent in the last quarter, while 20 percent of respondents expected revenue to remain the same in the medium term. Worryingly, 35 percent expect their orders to decline, representing a 12-points increase from last quarter and significantly more than the 9 percent who were worried about a decline in orders/revenue one year ago.
Relating to investment, when asked about their investment plans for 2012, only 32 percent of respondents were looking to increase their investment in the country, falling from 36 percent in the last survey and plunging from the 52 percent that were planning to do so one year ago.
A staggering 33 percent of businesses in this survey are planning to reduce their investments with 20 percent of them stating that they will ‘significantly reduce’ their investments in Vietnam this year. Meanwhile, in EuroCham’s survey one year ago, only 4 percent of respondents anticipated a significant reduction of their investment in Vietnam.
Relating to recruitment plans, 32 percent of respondents expected to hire more staff in the medium-term. Meanwhile, 41 percent expected to maintain the same level.
However, 26 percent are planning to reduce their staff in Vietnam. Only 19 percent of businesses were planning to do so last quarter and just 9 percent had plans to reduce their headcount this time last year.
While overall concerns about inflation remain high with 49 percent of companies expecting inflation to have a significant impact on their business, this figure is slightly lower than 52 percent last quarter.
However, when asked about the macroeconomic outlook for Vietnam over the next six months, 60 percent of respondents think that they will see a further deterioration of an already difficult economic situation against 30 percent, who think that the situation will stabilise and gradually improve.
This shows that the measures taken to stabilise the economy do not ease the concern of the business community about the macroeconomic outlook.