EuroCham announces Vietnam's BCI in Q2

This quarter the Business Climate Index has risen to the mid-point- from 48 to 50 points – following three quarters below 50.

This is the second consecutive increase, and it seems to suggest that European companies are regaining trust in the Vietnamese market.

The key indicators of this development are the improved business outlook, the increase of revenue/orders and the optimism about the overall economic outlook.

However, it is important to keep in mind that the BCI remains at 50, far below the highpoint of 79 in 2011 and that the improvements over the last two quarters remains limited, with an increase of 2 points per quarter.

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 and other activities.

Looking to the future, the business outlook for respondents has seen a significant improvement with members having positive expectations rising from 30% to 43%, a development which may be linked to the ongoing EU-Vietnam Free Trade Agreement (FTA) negotiations. Yet, this still means that 57% assess their outlook as either ‘neutral’ or ‘negative’.

Reported investment plans also seem to be improving. More companies are intending to ‘significantly increase investment’, having doubled from last quarter’s 7% to 13%.

Overall, investment plans look more positive than they did a year ago, with 76% of respondents either expecting to keep or increase their investment levels versus 72% one year ago and the number of respondents expecting to cut investments further declined to 19% from last quarter’s 24%.

This again indicates a returning faith in Vietnam’s medium term future and that Government initiatives are inspiring increasing confidence and optimism.

When asked about their expected number of orders and revenue in the medium-term the answers have also slightly improved.

Whilst the share of companies expecting revenue to increase improved from 45% to 53%, those expecting a drop in orders fell further from 23% to 16%, which is a significant improvement. In other words, 84% of respondents consider their orders/revenue to remain constant or to improve.

This positive development has also had a positive impact on recruitment plans, with 39% expecting to increase head-count versus 14% expecting to decrease - a very positive ratio.

Comparatively, the numbers at the same time last year were 33% and 19%, respectively. Government initiatives and the prospect of a strong FTA between EU and Vietnam seem to have led to an increase in confidence in the Vietnamese economy.

Concerns about inflation are declining, with 65% of companies expecting inflation to have no, or limited impact on their business in the medium-term, as compared to 55% last quarter and up from 43% a year ago.

Members were also asked to indicate what they think the rate of inflation will be and the average came to 5.13%, which is extremely close to last quarter’s estimate of 5.12% and down half a percentage point on last year’s 5.63%.

Respondents’ appreciation of the macroeconomic situation is also improving. Whereas last quarter a considerable 57% expected a further deterioration in conditions (and a staggering 72% the quarter before), this has now fallen below the midpoint to 48%.

In other words, 52% of the respondents believe that the economy will stabilize and improve in the future, something which has not been seen in our Business Climate Index since 2011.