Business confidence and outlook among European businesses in Vietnam has remained consistently near "neutral" for the third straight quarter, a quarterly survey by EuroCham shows.
The EuroCham Business Climate Index for April/May 2012 released on May 19 fell by three points to 53.
European businesses that took part in the survey continued to be cautious about their business outlook and in assessing their current situation as well as the overall economic outlook in Vietnam .
Of them, 44 percent are in the services industry, 28 percent in manufacturing, 20 percent in trading, and the rest in others.
There was a 10 percentage point increase to 29 percent in respondents assessing their current business situation as "not good". It had been only 12 percent a year ago.
The percentage of companies describing their current business situation as "good" was 34 percent, unchanged from the last survey but down from 50 percent a year ago.
No respondents described the current situation as "excellent".
Asked about their expected number of orders and revenues in the medium term, the answers were mixed – 58 percent expected an increase in revenues, a solid increase from last quarter when it was 47 percent.
The number of businesses expecting revenues to fall remained unchanged at 22 percent. Only 18 percent expected revenues to remain constant, down from 27 percent.
Overall, this represents an upward trend in the outlook on orders and revenues.
But it has yet to have an effect on recruitment plans with 46 percent of companies wanting to maintain their current level of staff.
Only a third wanted to increase their staff, a 7 percent fall from last quarter, while 19 percent were planning to lay off employees, up from 14 percent last quarter.
The signs of optimism in business outlook seen in the last survey remained largely unchanged, with 38 percent saying "good" and 36 percent remaining "neutral".
This was almost unchanged from the last quarter, but is put into perspective by the 51 percent of respondents who had a positive outlook this time last year.
Twenty-six percent had a pessimistic outlook.
The results are still not decidedly positive and little is seen in the form of recovery of business outlook. It is worrying that 62 percent assessed their outlook as either "neutral" or negative.
When asked about their investment plans for 2012, many respondents continued to be cautious: 34 percent wanted to maintain their level of investments and 38 percent were looking to increase them.
In the last survey only 36 percent had wanted to increase their investments, but the number had been 59 percent last year.
This shows a continuation of the trend that businesses are getting more cautious about investing.
From 24 percent last quarter, the proportion of businesses looking to reduce their overall investment in the country rose to 28 percent.
Though majority of companies are looking to maintain or increase their investments in the country, it is worrying that nearly a third of companies are considering a reduction.
The estimate for the expected depreciation in the dong was 5.63 percent, down from 8.33 percent last quarter, hinting at confidence in the Government's measures to curb inflation.
But 57 percent still saw inflation as a major concern or even threat to their business operations in Vietnam , slightly less than the 61 percent last time.
When asked about the difficult economic situation in Vietnam, 45 percent expected "stabilisation and improvement" of the current situation (up 10 percent from last quarter).
Though it points towards an increase in confidence, 55 percent of respondents still expected the overall economic situation to deteriorate further.
Following the recent completion of the scoping exercise and impending start of formal negotiations for a EU-Vietnam free trade agreement, respondents were asked what this will mean for their business.
A majority (51 percent) expected a positive impact on their business, 29 percent saw no impact, and 16 percent were unsure what an FTA will mean for them.
Though pointing towards a positive sentiment, it also underlined the need to clarify what exactly a free trade agreement will include and how it will impact European businesses in Vietnam .
When asked what parts of a free trade agreement will be most important for their business, the two most common answers were "elimination of import tariffs" (56 percent) and "enhancing trade in services" (51 percent).
This was followed by "tackling non-tariff barriers (34 percent) " and reaching "agreement on intellectual-property rights" (27 percent).
EuroCham chairman Preben Hjortlund said: "The continuing low level of the EuroCham Business Climate Index at 53 points shows ongoing concerns and uncertainty in the business community and amongst investors.
"While there are some encouraging signs, the overall business sentiment is stagnating at a relatively low level."
His business grouping's executive director Paul Jewell said: "The continuing low level of EuroCham's [index] can be explained by slow progress on many of the issues that were addressed in our Whitebook, coupled with some new issues that are eroding confidence in the business environment in Vietnam: Macroeconomic uncertainties, high rates of inflation, corruption and administrative burdens continue.
"European investors are increasingly looking for alternative investment destinations in ASEAN. Therefore Vietnam has to increase its efforts to remain competitive in the region.
"Tangible progress towards an EU-Vietnam free trade agreement will be a step in the right direction and help restore investor confidence."