Photo misa

HCM CITY (Biz Hub) — Business confidence and outlook among European businesses in Viet Nam have significantly increased, according to a the 14th quarterly EuroCham Business Climate Index survey, conducted in February 2014 and released yesterday.

It said the Business Climate Index (BCI) rose above the midpoint - from 50 to 59 points.

EuroCham Executive Director's Csaba Bundik said: "The BCI having gone above the midpoint is indeed great news and the first time we have seen 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."

"However, it is 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," Bundik said.

The BCI rise was likely due to the upswing of sales and general business optimism around Tet (Lunar New Year), the EuroCham report said.

But the report noted that an increase of nine percentage points seemed to suggest that other factors than Tet optimism were at play.

"Decreased fear of inflation, confidence in the macroeconomic outlook and the hope of the conclusion of a strong Free Trade Agreement are also likely to have had an impact," a press release about the report said.

Just under half of the businesses surveyed were in the services industry, a quarter in manufacturing, and a fifth in trading. Ten per cent were engaged in other activities.

Compared to the results of last quarter's BCI, the number of respondents assessing their current business situation as positive jumped from 38 per cent to 45 per cent - an increase of seven percentage points.

Respondents also assessed their sales and level of business activity in the last 12 months, with 42 per cent saying the past year had been more profitable than previous years. This also helped to explain the jump of the BCI from 48 to this year's 59.

However, at least 32 per cent of those surveyed found the past 12 months to have been less profitable.

Business outlook

Of those surveyed, 49 per cent had positive business expectations compared to last year's 30 per cent.

This positive outlook might be linked to the likely conclusion of the EU - Viet Nam Free Trade Agreement (FTA) later this year, the resolution of a number of issues from the EuroCham Whitebook and continued strong collaboration with the Government of Viet Nam, EuroCham said in its press release.

At the same time, 30 per cent had a negative outlook, higher than last year's findings (28 per cent).

In addition, the positive trend of the expected number of business orders continued, reaching 70 per cent (from 67 per cent and 61 per cent in the past two quarters, respectively).

And the level of respondents expecting a reduction of business orders remained relatively low, 15 per cent compared to 14 per cent last quarter.

In line with this development, reported investment plans have remained positive, with 78 per cent of respondents intending to keep or increase their investment levels.

These trends have had a positive impact on recruitment plans, with those surveyed saying they would increase their headcounts to 48 per cent this quarter compared to 47 per cent the previous quarter.

The number of respondents expecting to reduce their workforce remained low at 16 per cent compared to 15 per cent last quarter.

Macroeconomic outlook

At least 47 per cent of the companies surveyed said they expected stabilisation and improvement of the macroeconomic situation but 23 per cent feared a further deterioration.

At the same time, 29 per cent believe inflation will have a "significant or threatening impact" on their business, a drop compared to 45 per cent last year.

EuroCham members said they predicted the inflation rate would be an average of 3.68 per cent. Compared to last quarter's estimate of 4.69 per cent, this represented a significant improvement.

In another matter, when respondents were asked to assess the impact of the transfer pricing debate on the business environment in Viet Nam, 38 per cent found it to have a negative impact, with an additional 57 per cent saying it had a minor effect or none at all.

As in previous years, the main reasons respondents cited for their continued investments in Viet Nam were the size of the market and business opportunities; labour costs; and the relatively young population. — VNS