According to a recent survey, 28% of European enterprises are looking to reduce their overall investment in Vietnam, up from 24% last quarter and 8% in early 2011.

Nearly one-third of European firms plan on cutting back their investment this year

The European Chamber of Commerce in Vietnam (EuroCham) announced the results of the seventh quarterly EuroCham Business Climate Index survey on May 19.

The survey showed that the EuroCham Business Climate Index decreased by 3 points, to 53, indicating that European businesses remain cautious as they assess the economic outlook for Vietnam.

A total of 29% of enterprises surveyed said their current business situation was not good, up 10% compared to last quarter. There were none who described their current situation as excellent.

The percentage of businesses who maintained an optimistic outlook was 30%. Last year it was 51%. Also 62% of the participants said their outlook was either neutral or negative.

When asked about investment plans for 2012, most said they were cautious, with 34% who planned to maintain their level of investment, and 38% that were wanted to invest more. Last year, the survey reported 59% of businesses wanted to increase levels of investment in the country.

Nearly one-third plan on cutting back this year.

Inflation worries

The survey indicated an ongoing concern about inflation, even though the country's economy shows signs of recovery.

When asked about the expected percent of VND depreciation, the average estimate was 5.63%, down from last quarter's 8.33% last quarter, hinting at some increase in confidence in measures to curb inflation taken by the Government.

However, 57% of respondents still saw inflation as a major concern or even threat to their operations in Vietnam.

Concerning the difficult overall economic situation in Vietnam, 45% of companies expected to see some stabilisation in the economy, up 10% from last quarter.

The figure means an increase in confidence, however, 55% of respondents still expected the overall economic situation to deteriorate further.

EuroCham's Executive Director, Paul Jewell said, "The continuing low level of EuroCham's BCI 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," he added.