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European businesses see Q4 investment more promising in Vietnam

European business leaders are more optimistic toward the end of 2020 as their confidence has rebounded in quarter 3.

European business leaders feel more positive both about their own enterprises and Vietnam’s trade and investment environment, and report a sense of cautious optimism going into the fourth quarter (Q4), said Mr. Nicolas Audier, chairman of the European Chamber of Commerce (EuroCham) in Vietnam.

The Business Climate Index (BCI) from EuroCham, conducted by YouGov Vietnam, jumped 24 points to reach 57.5 – the highest score since the outbreak of the global Covid-19 pandemic.

Source: Business Climate Index (BCI) from EuroCham. Screenshot: NM

In Q1 of 2020, when Covid-19 first hit international trade and investment, the BCI fell to 26 points. It saw a slight increase in Q2 as Vietnam became one of the global success stories in containing the pandemic. Now, with businesses able to operate with far fewer restrictions and the EU-Vietnam Free Trade Agreement (EVFTA) entering into force on August 1, the confidence of European business leaders has seen a strong resurgence.

Source: Business Climate Index (BCI) from EuroCham. Screenshot: NM

Business leaders were more positive about their own enterprise in Q3, with 40% describing their performance as either “Excellent” or “Good” – more than double the 18% recorded in the previous three-month period.

Source: Business Climate Index (BCI) from EuroCham. Screenshot: NM

Q4 looks to be even more promising, with 44% predicting a strong end to 2020. Meanwhile, most companies are anticipating stabilization in their headcount (65%) and investment plans (57%), with just under half (44%) expecting to see an increase in their revenue and orders.

With the EVFTA entering into force in Q3, the BCI surveyors asked EuroCham members about its impact on their business and investment plans. One-third said that the agreement was an important part of their decision to invest in Vietnam, with the top two factors predicted to drive growth being tariff reductions (33%) and greater market access for investors (13%).

“Drilling down into the data, we can see some of the trends that underlie the jump in positive sentiment in more detail,” Mr. Thue Quist Thomasen, CEO of YouGov Vietnam said. “In short, business leaders are reporting a sense of cautious optimism in their own companies, and this is driving confidence in Vietnam’s macroeconomic prospects next quarter.”

Source: Business Climate Index (BCI) from EuroCham. Screenshot: NM

In particular, the proportion of business leaders predicting an increase in their orders or revenue in the next three months has risen by 20%– from 24% in Q2 to 44% in Q3. Meanwhile, 23% of business leaders expect to hire more staff in the next three months, compared to 14% in the last BCI. “Together, these signals point to a positive end to 2020,” Mr. Thomasen said.

Mr. Audier commented that the implementation of the EU-Vietnam Free Trade Agreement in August has, no doubt, helped to boost this growing confidence. The BCI data shows that falling tariffs and growing market access are important to our members, and will help to spur new foreign-direct investment from the EU in the future.

The BCI is a regular barometer of EuroCham members and their perceptions of the trade and investment environment. Each quarter, it tracks the performance of EuroCham’s member companies and their perceptions of the economic outlook in Vietnam.

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