Việt Nam's business confidence gains traction in Q4 2023 amid challenges: EuroCham report

Tuesday, Jan 09, 2024 08:49

Garment and textile products are being made for export to the European Union. — VNA/VNS Photo

Confidence among European businesses operating in Việt Nam is showing signs of resilience, according to the latest Business Confidence Index (BCI) from the European Chamber of Commerce in Việt Nam (EuroCham).

While this uptick signals gradual stabilisation, it's vital to highlight that the BCI has remained below the midpoint since Q4 2022. Notably, over one-third of businesses anticipate underperformance, underlining a cautious outlook amid persistent market weaknesses.

EuroCham Chairman Gabor Fluit said: “There's definitely a positive trend underway. While we still have a long way to go for a full recovery, businesses are feeling more hopeful. The European business community is increasingly optimistic that the most challenging economic period is now behind us.”

As Việt Nam's business landscape transitioned from Q3 to Q4 2023, subtle yet telling shifts in sentiment emerged. While there was a slight two percentage point dip in overall optimism for economic stability and growth, this was more than offset by a drop of 14 percentage points in expectations of an economic downturn. 

Looking ahead, Việt Nam's business sector is poised for growth. 31 per cent of companies plan to expand their workforce in Q1 2024, and 34 per cent intend to increase their investments, a clear uptick from 2023. These statistics signal a strong momentum for growth and opportunity as Việt Nam begins 2024.

In Q4 2023, Việt Nam's investment hotspot status increased significantly. An impressive 62 per cent of those surveyed ranked Việt Nam among their top ten global investment destinations, with 17 per cent placing it at the very top. This strong endorsement is matched by 53 per cent of respondents anticipating increased foreign direct investment in Việt Nam by the end of Q4.

The survey also highlights Việt Nam's strategic position in the ASEAN region. While only a small fraction (two per cent) consider it an 'industry leader', a noteworthy 29 per cent rank it among the 'top competitive countries' in ASEAN. The majority (45 per cent) view Việt Nam as a competitor, albeit acknowledging certain challenges. This perspective emphasises Việt Nam's growing influence and potential for further advancement within the ASEAN economic landscape.

In 2023, the potential of the EU-Việt Nam Free Trade Agreement (EVFTA) was increasingly realised by businesses.

However, the survey also reveals challenges in fully leveraging EVFTA's potential. About 13 per cent of respondents cited 'Uncertainty or lack of understanding of the agreement' as a primary obstacle, suggesting a need for more clarity and education around the agreement's provisions.

Fluit said: “Confidence among the foreign business community in Việt Nam is clearly on the rise. New data for 2023 support this. Last year, foreign direct investment reached US$36.61 billion, jumping 32.1 per cent from 2022. This is a clear illustration of growing faith in Việt Nam's economy.”

However, he added: “While these figures are indeed promising, it's crucial to maintain a cautious outlook. It's noteworthy that the BCI still remains below the midpoint, and more than one-third of businesses still expect to underperform.”

“Given the intense economic competition in the region, Việt Nam should stay vigilant. It's crucial for the country to keep refining its policies and strategies to draw and maintain European foreign direct investment. One vital area to focus on is simplifying administrative procedures, a well-known obstacle for businesses. At the same time, investments in infrastructure to reduce logistics costs and upgrading the skills of the workforce are equally essential. This will help Việt Nam stay competitive and maintain its growth trajectory.”

Decision Lab CEO Thue Quist Thomasen said: “Việt Nam's long-term economic trajectory suggests a promising path of continued growth. In the short and medium term, Việt Nam is showing its trademark ability to deliver a stable business climate even in turbulent times, as we observe the fifth quarterly measurement within the range of 40 to 50 index points. Continued stability and potential improvement in 2024 will underpin the case for further Foreign Direct Investments in the country.”

The quarterly BCI, which is conducted by Decision Lab, reaching 46.3 in the fourth quarter of 2023, offers a snapshot of European investor sentiment in Việt Nam. Conducted since 2011, it surveys a pool of over 1,400 EuroCham members across various sectors, delivering real-time observations into the ever-evolving dynamics of this vibrant Southeast Asian market. — VNS

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