European firms lose confidence

European firms lose confidence

Business confidence and outlook among European businesses in Viet Nam continue to drop, the 9th EuroCham Business Climate Index survey released last Friday shows.

The level has fallen to a record low of 45 points this quarter.

EuroCham members who participated in the survey expressed increasing concern about their current business situation and outlook as well as the impact of increased taxes, fines, and official scrutiny.

More than half of the businesses that participated in the survey are active in the services industry, a quarter in manufacturing, and the rest in trading or other activities.

Compared to the last survey, there was a further drop – from 30 per cent to 26 per cent – in respondents assessing their current business situation as positive (‘good' or ‘excellent').

More than a third of businesses continued to have a negative view of their current situation. The neutral assessment of the current situation grew to 37 per cent – up by 7 index points.

Also continuing a negative trend was the business outlook, with 35 per cent of respondents assessing their business outlook as 'not good' or 'very poor'.

There was a further decrease in businesses having a ‘good' or ‘excellent' outlook – down from 31 per cent last quarter to 26 per cent.

But paradoxically, the percentage of respondents planning to increase their investments in the country was up, rising seven points to 39 per cent since last quarter.

There has also been a reduction in the percentage of businesses aiming to reduce their investments ‘significantly' in 2012 – only 13 per cent, down from 20 per cent last quarter.

The number looking to maintain their current level of investment remained relatively constant at 32 per cent.

These developments probably reflect the medium-term optimism linked to the recent improvements in macroeconomic stability.

Recruitment plans have improved, with 40 per cent of respondents expecting to hire more staff in the medium term and 33 per cent expecting to maintain the same levels.

The percentage of businesses planning to cut payroll in Viet Nam decreased by 3 points to 23 per cent.

Inflation concerns remain

Concerns about inflation remained high with 50 per cent of companies expecting inflation to have a significant impact on their business in the medium term.

Members were also asked to predict the inflation rate, and the average was 5.63 per cent, slightly down from last quarter's 5.82 per cent, and considerably lower than the forecast a year ago of 7.83 per cent.

When asked about the macroeconomic outlook for Viet Nam over the next six months, a staggering 72 per cent feared a further deterioration of an already difficult economic situation.

This was 12 points higher than last quarter, and indicated that the measures taken to stabilise the economy have not eased the concerns of the business community.

The fact that only 28 per cent thought that the situation would stabilise and gradually improve is possibly linked to concerns about the banking situation.

The current downturn in the economy has impacted tax revenues, resulting in increased fines, auditing visits, customs duties, and 72 per cent of respondents have experienced some form of increased scrutiny.

Ten per cent of the respondents said it threatens their business in Viet Nam.

When asked what aspects of the official scrutiny are of biggest concern to them, the most cited were labour issues (39 per cent), licensing issues and new interpretation of the tax law (both 36 per cent), and increased auditing visits (31 per cent).

The report said EuroCham would continue to advocate the need for removing this increased scrutiny, claiming that in the current business climate it is more important than ever not to deter potential investors willing to do business in Viet Nam by "unreasonable scrutiny."

EuroCham chairman Preben Hjortlund said: "During the past 12 months EuroCham's BCI has declined from 56 to 45 points – a drop of 11 points.

"This indicates declining confidence in Viet Nam as an investment destination for European business. We remain hopeful that recent developments such as the beginning of negotiations for the FTA between Viet Nam and the EU will encourage Viet Nam to improve its competitiveness and attractiveness and turn around the declining business climate."

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