Europe warms to local market

Europe warms to local market

Business confidence and outlook among European businesses in Viet Nam have continued to increase, last month's EuroCham Business Climate Index survey shows.

This quarter the BCI is back to 2011 levels of 66, up from last quarter's 59.

It is expected that the continued BCI is linked not only to the ongoing EU-Viet Nam FTA but also the proposed creation of the ASEAN Economic Community next year.

With an eye on the ASEAN Economic Community, the survey also asked respondents to evaluate Viet Nam's competitive advantages against other ASEAN countries across a number of different criteria. Labour cost was perceived as one of the main reasons for EuroCham members to prefer Viet Nam.

On the other hand, a comparatively high percentage of respondents assessed Viet Nam as being less competitive in terms of infrastructure (75 per cent) and the legal/administrative system (80 per cent).

In terms of internal market developments supporting the rise in the BCI, the survey found that increased investment plans and the positive perception of business situation and business outlook could also be counted.

However, the vast majority of responses to this quarter's BCI were provided prior to the anti-Chinese protests, which may have had an impact on the overall findings, the survey said.

Stable, positive business situation

The number of respondents assessing their current business situation as positive has remained relatively stable at 44 per cent - compared to 45 per cent last quarter and 43 per cent last year.

But the number of respondents with a negative perception has declined from 29 per cent to 21 per cent.

European companies expressed a number of concerns.

When participants were asked about the impact of the new Decree 102/2013/ND-CP and Circular 03/2014/TT-BLDTBXH on hiring of foreign staff and experts for their companies, 69 per cent indicated it would be an issue.

This is further supported by the finding that only 16 per cent of respondents said the lack of skilled labour in Viet Nam would not have an impact on their business; a full 50 per cent said it would have a serious impact on their companies.

The business outlook has seen a continued qualification with responses having positive assessment rising above the midpoint to an impressive 57 per cent compared to last quarter's 49 per cent and last year's 44 per cent.

This quarter sees high expectations from the European business community in terms of strong implementation of the FTA. In addition, the new online Customs VNACCS/VCIS system is deemed to be positive by most relevant respondents (75 per cent).

There was a return to the trend of increasing investment, with 81 per cent of respondents planning to maintain or increase their investment compared to 78 per cent last quarter.

The positive development in investment plans also transfers into recruitment plans, with the number of respondents expecting to increase their headcount continuing to increase – from 48 per cent last quarter to 55 per cent.

Equally important was the fact that the number of respondents expecting to reduce their workforce further diminished to 11 per cent from 15 per cent last quarter.

But, unfortunately, this is not an outcome of increased orders as the number of respondents expecting an increase in business orders dropped to 64 per cent from 70 per cent last quarter.

On the other hand, the number of respondents expecting a reduction in business orders has remained low – at 12 per cent compared to 15 per cent last quarter and 14 per cent in the previous two quarters.

Inflation outlook worse, but economy to be stable

After a dip in the expected level of inflation last quarter (3.68 per cent) the inflation level is now back to earlier expectations, with members estimating it to be around 4.26 per cent this quarter.

They remained somewhat confident in the macroeconomic outlook, with 46 per cent expecting "stabilisation and improvement" of the situation (slightly lower than last quarter) and 26 per cent fearing a further deterioration.

The ratio of respondents expecting a deterioration has slightly increased from the 23 per cent last time.

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