A pandemic collapse in business optimism during the third quarter of 2011 lays bare the dramatic impact of economic uncertainty and financial instability on the global business community, including Vietnam, finds a newly-released research fromGrant Thornton’s International Business Report (IBR).
The latest research reveals that net global business optimism has collapsed from 31 per cent to just 3 per cent.
Ominously, this uncertainty has also spread to key emerging markets with both China and India seeing net optimism decline by 29 percentage points. The optimism of business owners in mature markets has been hit particularly hard; in North America optimism has dropped from 43 per cent to 3 per cent, and in the EU from 34 per cent to 0 per cent.
Ed Nusbaum, CEO of Grant Thornton International, said: “These figures are the worst since 2009, when we were in the midst of the global recession. The worrying thing is that negative sentiment about the wider economy is now damaging business growth prospects.
“Businesses, particularly in developed countries, are telling us they feel they have no control over how things are going to turn out. There’s a perception that attempts to create stability and stimulate growth just haven’t worked. An economic outlook that appeared to be improving just three months ago has been replaced with one of total uncertainty.”
Vietnam’s optimism for its economic outlook has, in line with other counties, suffered a second successive fall in the third quarter of 2011 compared to the previous quarter it moved from +54 per cent to +38 per cent.
In the first quarter of 2011, the Vietnamese government took some strong decisions in the management controls of monetary and financial policy, especially to reduce interest rates and increase credit growth. “Whilst these are beginning to have an effect, it is the first time in my 20+ years here that I have seen so many Vietnamese business owners pessimistic about the future,” said Ken Atkinson, managing partner of Grant Thornton Vietnam.
Vietnamexperienced a welcome slow down of the growth rate of CPI in the third quarter of 2011 (July – 1.17 per cent, August – 0.93 per cent, September – 0.82 per cent) thereby suggesting that the worst may be over.
“Whilst there has been a certain amount of de-stocking, businesses generally, in Vietnam, are suffering from the burden of high borrowing costs (72 per cent) and shortage of working capital (50 per cent),” added Atkinson.
Wage increases seem set to continue to add to the inflationary pressure, in Vietnam, with 70 per cent of respondents indicating salary and wage increases over the next 12 months would be in line with or above the rate of inflation.
The prospect of businesses driving growth is being constrained by the on-going uncertainty, especially in many mature markets where governments and consumers are reigning in spending. Globally, business expectations for employment, revenue and profits have fallen by 11, 10 and 9 percentage points respectively. In Vietnam the corresponding figures are 10 per cent for employment, 6 per cent for revenue but 14 per cent of respondents expect a decrease in profits.
A shortage of demand is now the single biggest constraint on growth facing businesses around the world not just in the EU (29 per cent) and BRIC countries (32 per cent) but also in ASEAN (41 per cent), G7 (32 per cent), PIGS (42 per cent) and Asia Pacific economies (48 per cent), including Vietnam (48 per cent), Thailand (88 per cent), Taiwan (40 per cent), Singapore (14 per cent), Japan (71 per cent) and China (38 per cent).
“Currently, the problems Vietnam needs to continue to address are inflation and interest rates. The stock market is still gloomy, partly reflecting the views of many people and businesses, showing the loss of faith in economic growth this year and even into 2012,” Atkinson said.
Bill Hutchison, advisory services partner added, “Europe, one of the major markets for emerging economies, including Vietnam, faces a double set of problems arising from a slowdown in economic activity and several countries facing crisis in terms of their national debt. There is now a major risk of a double dip recession in many European countries. This could have a significant negative impact on Vietnam, especially at a time of reduced domestic confidence and retail spending.”