EuroCham Vietnam's quarterly business confidence index rises for third time in a row

EuroCham’s Business Confidence Index (BCI) for Vietnam rose for the third time in a row to 52.8 in the first quarter of 2024, the highest level since Q3/2022, which indicates optimism in the national economy.

The index, reflecting the business sentiment of 1,400 European companies operating in Vietnam, fell from 73 in Q1/2022 to 68.6 in Q2/2022, 62.2 in Q3/2022, 48 in Q4/2022, 48 in Q1/2023, 43.5 in Q2/2023. Since then, the index has improved to 45.1 in Q3/2023, 46.3 in Q4/2023, and 52.8 in Q1/2024.

From Q4/2023 to Q1/2024, the ratio of businesses expressing optimism in the economic outlook increased by six percentage points from 39% to 45%, while pessimism correspondingly decreased by eight percentage points (from 18% to 10%).

Regarding positivity in the economy, EuroCham’s survey noted macroeconomic factors as the biggest contributor, with 48% of survey respondents giving “good” or “excellent” answers. They include sub-factors such as a rebound of the economy, improved consumer spending, a sales boost during Tet (Lunar New Year holiday), and higher demand for services.

Other key factors were government policies with 20%, which include higher public investment and supportive monetary/fiscal policies; and business performance with 13%, including fulfilling or breaking sales targets and team performance.

On the negative side, EuroCham also stressed macroeconomic factors as the largest impacts, with 41% of surveyed businesses answering “not good” or “very poor.” They include sub-factors of the real estate market crash, the global economic situation, and geopolitical tensions.

Other factors were industry-specific challenges, especially the construction and renewable energy industries, with 24%; government policies and regulations, such as lack of regulator progress and investment restrictions, with 18%; and labor issues and visa difficulties, with 10%.

For the business outlook in Q2/2024, 4% expected “very poor” outcomes, 21% “not good”, 41% “neutral”, 33% “good”, and 1% with “excellent”. The 33% portion of “good” clarified “We will start to see demand for Vietnamese goods increasing, plus the impact of new volumes coming from previous year(s) FDI going live.”

For the five-year outlook (long-term), 53% gave “somewhat optimistic” responses, 18% with “very optimistic”, and 15% with “neutral”. The rest said “somewhat pessimistic” and “very pessimistic”.

While optimism remains high, businesses face regulatory hurdles in Vietnam that hinder market entry and long-term investment. EuroCham pointed out a key concern of “administrative burdens” with over half of respondents citing this issue. Other issues included “unclear regulations” with 36%; “permit and license difficulties” with 28% experiencing costly delays in obtaining approvals; and “work visa barriers" with 26% saying restrictive rules stifle skills transfer and discourage foreign expertise and capital.

To attract more foreign investment, businesses suggested “simplifying administration” with 37% of respondents, “strengthening the legal framework” with 34%, and “enhancing infrastructure” with 28%.

“This positive trend underscores the European business community’s view of Vietnam as a dynamic market with promising growth prospects,” said EuroCham chairman Dominik Meichle. “The index once again rising above the 50 threshold reaffirms the country’s growing appeal. Continued efforts to enhance stability and predictability will further strengthen Vietnam’s global competitiveness and unlock its full potential,” the executive added.

“Vietnam has tremendous economic potential, and addressing regulatory challenges is key to fully realizing it,” said Meichle. “Streamlining procedures and establishing more transparent regulations will empower both Vietnamese and foreign businesses to succeed. This will position Vietnam as a leading investment destination in the region, benefiting domestic businesses, attracting international capital, and strengthening economic partnerships,” he added.

“Vietnam has tremendous economic potential, and addressing regulatory challenges is key to fully realizing it,” said Meichle. “Streamlining procedures and establishing more transparent regulations will empower both Vietnamese and foreign businesses to succeed. This will position Vietnam as a leading investment destination in the region, benefiting domestic businesses, attracting international capital, and strengthening economic partnerships,” he added.