EuroCham BCI Q1-2014: Business confidence and outlook among European businesses in Vietnam have significantly increased

Ho Chi Minh City, 25 February 2014 - Results of the 14th quarterly EuroCham Business Climate Index survey, conducted in February 2014, show that business confidence and outlook among European businesses in Vietnam have significantly increased. This quarter the Business Climate Index has for the first time since 2012 gone above the midpoint - from 50 to 59 points. This is an important increase, which seems to further demonstrate the strong belief of European companies in the Vietnamese market. The rise is likely to be linked to the upswing of sales and general business optimism around the Tet period, as we have experienced in previous years. However, an increase of 9 percentage points seems to suggest that other factors than just Tet optimism are at play. Other factors such as the decreased fear of inflation, confidence in the macroeconomic outlook and the hope of the conclusion of a strong implementable FTA later in the year, are also likely to have had an impact.

Just under half of the businesses that participated in the survey are active in the services industry, a quarter in manufacturing, one fifth in trading and around ten percent are engaged in other activities.

Considerable improvement of current business situation

Compared to the results of last quarter’s BCI, the number of respondents assessing their current business situation as positive has jumped from 38% to a very strong 45% - an increase of 7 percentage points. This is even higher than what we saw at Tet last year, where the level was at 40%. The current level therefore demonstrates a further improvement of the perception of the business situation. 

This finding is supported by how respondents assess their sales and level of business activity in the last 12 months compared to previous years, with 42% finding the past year to have been more profitable – explaining the jump from last year’s BCI at 48 to this year’s 59. However, it should be noted that a considerable 32% found the past 12 months to have been less profitable.                 

Year of the Horse brings promising business outlook:

Looking to the future, the business outlook for respondents has equally experienced a considerable improvement with members having positive expectations rising to 49% compared to last      quarter’s 44% and significantly higher than last year’s 30%. This positive outlook might be linked to the likely conclusion of the EU-Vietnam Free Trade Agreement (FTA) later this year, the successful resolution of a number of issues from the EuroCham Whitebook and the continued strong collaboration with the Government of    Vietnam. 

At the same time, 30% keep a negative outlook, which is higher than last year’s findings (28%). This clearly demonstrates the need for the Government of Vietnam to continue to work on addressing the issues brought forward by the business community and to    ensure a strong, implementable EU-Vietnam FTA. 

Investment and recruitment plans improve as expected business orders continue to rise:

The positive trend of expected number of business orders has continued- reaching 70% (from 67% and 61% in the past two quarters, respectively). At the same time, the level of respondents expecting a reduction of business orders has remained relatively low - 15% compared to 14% last quarter.
In line with this development, reported investment plans have remained positive, with 78% (81% last quarter) of respondents intending to keep or increase their investment levels. 

The positive development in expected business orders and investment plans continues to positively impact recruitment plans, with the number of respondents expecting to increase their headcounts slightly increasing – from 47% last quarter to 48% this quarter. Equally important is the fact that the number of    respondents expecting to reduce their workforce has remained low - 16% compared to 15% last quarter.

Macroeconomic outlook stabilises whilst expected inflation rate decreases:

Respondents remain somewhat confident in the macroeconomic outlook, with 47% expecting ‘stabilisation and improvement’ of the situation (same as previous quarter) and 23% fearing a further deterioration. At the same time, the number of respondents expecting inflation to have a ‘significant or threatening impact’ on their business remains limited (29%) compared to the past (45% last year). Members were also asked to indicate what they think the rate of inflation will be and the average came to 3.68%. Compared to last quarter’s estimate of 4.69%, this represents a significant improvement.

 EuroCham members assess… 

… the areas where improvements would have a significant positive impact on companies in the long term 
The areas of improvement deemed to have the biggest impact on the European business community were, in line with previous findings, centered on legal and administrative matters. Yet, infrastructure and education were not lagging far behind. 

… the impact of the recent attention on transfer pricing issues:

When respondents were asked to assess the impact of the transfer pricing debate on the business environment in Vietnam, 38% found it to impact have a negative impact, with an additional 57% finding it to have
minor or no impact.  

… the main reasons for continuing to invest in Vietnam:

Respondents clearly expressed their belief - and hope - that the   various economic and administrative challenges will be positively addressed in the coming time. Respondents also provided a plethora of other reasons for their continued investments in Vietnam, whereof the most repeated were linked to ‘the size of the market and consequent business opportunities’, ‘labour costs’ and ‘the relatively young population’. 

EuroCham Chairman, Preben Hjortlund commented on the survey: “It is encouraging to see the EuroCham Business Climate Index move above the midpoint – and to an impressive 59. The increase of 9 points seems to suggest that this is more than just post-Tet optimism, with a genuine belief in improved business conditions and outlook appearing. EuroCham will continue to work with the Government of Vietnam to create practical benefits for the business community in order to ensure that we keep the positive momentum.”

EuroCham Executive Director, Csaba Bundik added that: “The Business Climate Index (BCI) having gone above the midpoint is indeed great news and the first time we see this since the second quarter of 2012. This is a very healthy sign, as it demonstrates that European companies are regaining trust in the Vietnamese market. This comes at a very opportune moment with the nearing of the conclusion of the EU-Vietnam FTA. However, it is also important to note that the BCI could decrease again next quarter, as we have seen it happen ever since the very first BCI was published.”

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