During the third quarter of 2022, European business stakeholders' perception of Vietnam's business and investment climate slipped further to 62.2 in the wake of a worsening global economic downturn but still remains strong, according to the Business Climate Index (BCI) published by the European Chamber of Commerce in Vietnam (EuroCham) and produced by YouGov Decision Lab.
Although Vietnam's economy grew at a record 13.67 percent year-on-year in the third quarter of 2022, the BCI declined for the second consecutive quarter, dropping 6.4 index points from Q2 and 10.8 points from Q1. This comes at a time when global economic conditions remain unstable due to the escalating conflict in Ukraine, persistent inflationary pressures, a labour shortage worldwide, and stagnant global growth.
In the midst of the current global economic uncertainty, the BCI is still 10.2 points higher than its pre-pandemic level of 52.0 in the fourth quarter of 2019, and 1.2 points higher than the fourth quarter of 2020, when Vietnam was easing its pandemic-related restrictions.
EuroCham’ Quarterly Business Climate Index (BCI)
The BCI is the leading indicator of the European business and investment community in Vietnam. To better understand the Vietnamese market, EuroCham invites its more than 1,200 members, representing virtually every sector of the Vietnamese economy, to provide quarterly updates on Vietnam's business environment and forecasts for their own businesses in Vietnam. Researchers from YouGov Decision Lab conduct the BCI research and compile the data.
The BCI’s results also showed a decline in optimism among European business stakeholders. Approximately 42 percent of participants anticipate that the economy will stabilise or improve in the fourth quarter of 2022. This is an 18 point decrease from projections for the third quarter, when 60 percent held this view. Similarly, the percentage of those anticipating economic deterioration increased by seven points to 19 percent.
Even so, when respondents were asked whether they were optimistic about the prospects for their own businesses during the fourth quarter of 2022, 45 percent responded positively, down only four points from last quarter. Furthermore, respondents expect investment planning, orders, and revenues to remain relatively stable compared with the previous quarter. The outlook here appears to be more optimistic than that for the economy as a whole.
As for foreign direct investment, 42 percent anticipate that their firm will increase FDI flows to Vietnam by the end of 2022. The respondents indicated that Vietnam could bolster these FDI levels by reducing administrative difficulties (68 percent), improving infrastructure (53 percent), developing human resource capacity (39 percent), and reducing visa barriers for foreign experts (39 percent).
While only 2 percent of BCI participants reported that they have relocated a significant portion of their operations from China to Vietnam, this suggests that there is still considerable room for growth. In the event that these aforementioned obstacles are resolved, Vietnam would be well positioned to attract more foreign firms relocating from China.
Despite a quarter of respondents identifying green growth as a key factor in attracting FDI to Vietnam, the number of respondents who rated Vietnam's green potential positively decreased from 44 to 32 percent. To accelerate green development, participants in the BCI recommended that Vietnam improve its legal framework (92 percent), its infrastructure (87 percent), and its investment incentives (86 percent).
As August 2022 marks the two-year anniversary of the implementation of the EU-Vietnam Free Trade Agreement (EVFTA), the perception of its benefits has declined by four percentage points in comparison to the previous quarter. Administrative procedures were cited as the primary reason for this (38 percent), followed by a lack of understanding of the agreement (18 percent), and technical barriers to trade (16 percent).
Commenting on the BCI, EuroCham Chairman Alain Cany said:
“The future of Vietnam is bright. Vietnam offers great investment opportunities for European businesses, and we are very excited about the country's prospects in the medium- to short-term. Through the EU-Vietnam Free Trade Agreement and our shared commitment to sustainable development, Vietnamese and European companies have a great deal of growth potential.”
“It is true that we are less optimistic now than we were at the beginning of 2022 due to external factors slowing global growth. The fourth quarter will also likely be less positive than the second or third quarters of the year.”
“Still, these BCI results are encouraging. Vietnam will certainly be in a better position in two or three years, demonstrating its place among the most exciting and dynamic business and investment destinations.”
CEO of Decision Lab Thue Quist Thomasen added:
“A worsening global economic environment is taking its toll on the optimism amongst European business leaders in Vietnam. However, by curbing inflation, improving credit ratings and continuing GDP growth, Vietnam’s story stands out as less pessimistic globally as companies plan and look forward to 2023. By dropping 6.4 index points to 62.20, sentiment remains well above the midpoint of 50, indicating positive sentiment and a still optimistic view on the future.”
About EuroCham Vietnam
The European Chamber of Commerce in Vietnam (EuroCham Vietnam) has remained the unified voice of the European business community in Vietnam since 1998. EuroCham Vietnam advocates on behalf of a plethora of sectors and companies ranging from SMEs to MNCs and has a robust business network in both Vietnam and Europe. The organisation acts as a bridge for European companies interested in the Vietnamese market and Vietnamese companies considering European market expansion, helping both to harness the full potential of the European Union–Vietnam Free Trade Agreement (EVFTA).
EuroCham’s membership of more than 1,200 makes it one of the biggest foreign chambers of commerce in Vietnam. Its members directly employ more than 150,000 people across the Vietnamese economy. EuroCham is also an umbrella chamber, counting among its membership nine European-affiliated business associations, including the Belgian-Luxembourg Chamber of Commerce, the Central and Eastern European Chamber of Commerce, the Chamber of Commerce and Industry Portugal-Vietnam, the Dutch Business Association, the French Chamber of Commerce and Industry, the German Business Association, the Italian Chamber of Commerce, the Nordic Chamber of Commerce, and the Spanish Chamber of Commerce in Vietnam.
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