Quarter 1-2012: EuroCham Business Climate Index shows slight increase

HCMC - Results of the sixth quarterly EuroCham Business Climate Index survey, conducted in January 2012 and released today, show that business confidence and outlook among European businesses in Vietnam has stabilised and shown a modest increase after a steep 11 point drop in the last quarter of 2011. Concerns about the current business situation and outlook appear to have eased slightly among EuroCham member companies that participated in the survey. However, their business outlook and assessment of the current situation remains sombre.
40% of the businesses that participated in the survey are active in the services industry, about a quarter in each manufacturing and trading and the rest in other activities.

Little change in current business situation:
Compared to our last survey, there was little change in respondents assessing their current business situation.  38% of companies  are assessing their current business situation as ’neutral’, slightly down from 45% in the last survey. A ‘good’ or ‘excellent’ view of their current business situation was held by  36% or respondents, up slightly from 32% last quarter, but still much lower than the 64% who were content with their current business situation this time last year. The number of businesses having a negative view on their current situation has remained nearly unchanged since last quarter, but at 26% it is 14% points higher than a year ago.

Year of dragon brings slight optimism in business outlook: 
We can see signs of optimism in companies business outlook. 39% stated a ‘good’ or ‘excellent’. 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. A quarter of respondents had a pessimistic outlook for business in the last 6 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.

Inflation remains a major concern for businesses:
We asked all respondents to give us their estimate for the expected percent of VND depreciation. The average number of all answers we received was 8.33%. Furthermore, 53% of companies expect inflation to have a significant impact on their business and 36% expect to be impacted in some way.  8% stated that inflation was actually threatening their business in the country.

Macroeconomic uncertainties in Vietnam…...and Europe:
A significant 65% of companies expect the difficult macroeconomic situation in Vietnam to further decline while 35% expect the situation to stabilize and gradually improve. This shows an underlying uncertainty by investors about the fate of the Vietnamese economy. When asked whether the current economic crisis in Europe is affecting their company's decision to invest in Vietnam, 55% stated that the crisis affected them, although most of them stated a ‘slight’ effect. On the contrary, 44% said that the crisis in Europe does not affect their decision to invest in Vietnam at all.

Corruption still affecting many investors:
When asked whether corruption had ultimately reduced or delayed their investment in Vietnam, opinions were split roughly in thirds. About 39% stated a slight impact,  and 25% said corruption had not affected them at all, 34% of companies said that corruption had ‘significantly’ reduced or delayed their investment in Vietnam. This is an increase from 28% last quarter and indicates that corruption is still a serious problem and features prominently in investors considerations about the country.

EuroCham Chairman Alain Cany commented on the survey: “The slight increase of the EuroCham Business Climate Index at 56 points shows a halt in the downward trend in business confidence we have seen in 2011. However, the business confidence is still far below last year’s level. This shows that  uncertainty amongst investors remains. Key structural issues have not been resolved such as privatization of state own enterprises and stabilising the macroeconomic environment to name two examples.”

EuroCham Executive Director Matthias Dühn added that “the European debt crisis has added to investors uncertainty and impacted European investment in Vietnam.  European investors are increasingly looking for alternative investment destinations in ASEAN. Therefore Vietnam has to increase its efforts to remain competitive in the region. After well over a year of conducting the EuroCham Business Climate Index survey, we are seeing emerging patterns: Despite the latest improvements in business sentiment, comparison with results this time last year, when the index was at its highpoint at 79, puts the latest results into perspective.

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