Vietnam’s New Economic Environment Assessed through the Business Optimism Index

November 5, 2015 Posted by Vietnam Briefing Reading Time: 4 minutes

Foreign investment has played a big role in Vietnam’s economy for the past several years, in part contributing to the country’s growth in the Association of Southeast Asian Nations (ASEAN). However, China’s slowdown and its effects on ASEAN have the potential to affect FDI into Vietnam as investors take a more cautious approach to the region.

It is within this context that the latest Business Optimism Index by Dun & Bradstreet looks at what Vietnam and other ASEAN countries can expect for the next quarter. It measures investor optimism through sales volume, net profit, selling price, new orders, inventory, and employment across numerous sectors and industries. In this article, we focus on the report’s key findings for Vietnam and their implications for foreign investors.

Business Optimism for Foreign Investment in Vietnam

Confidence in Vietnam remains stronger relative to other countries in ASEAN, with the Index giving Vietnam one of the best scores. The overall index increased two percent quarter-on-quarter to reach 45 percent, almost on par year-on-year with the 47 percent seen in Q4 2014. Vietnam saw increases in four out of the six parameters measured – the only country in the region to achieve this.

The largest increases are seen in the wholesale and services sectors, with optimism levels up 12 percent and nine percent respectively. However, construction and finance remain the two industries with the highest optimism levels – 54 percent and 50 percent – despite almost no change quarter-on-quarter. Meanwhile, the manufacturing sector posted an 11 percent decrease to reach 37 percent. This was due mostly to the adjustment in exchange rates that affected import-substitution and export-oriented companies.

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Moving on to parameters, volume of sales and net profit registered the highest scores. Volume of sales remained almost unchanged at 71 percent. Net profits, meanwhile, saw a 13 percent increase to reach an optimism level of 88 percent – the highest level since Q4 2013. The downward trend of fuel prices helped improve the performance of the services, transportation, and wholesale sectors, leading to the increase in optimism levels in net profits.

Year-on-year new orders saw the highest increase (14 percent), while selling price and inventory levels experienced the biggest losses, 23 percent and 20 percent respectively. However, despite this y-o-y loss, inventory levels still managed to register a 4 percent increase q-o-q. Optimism was stronger in the wholesale and mining sectors, increasing by 34 percent and 27 percent respectively.

Employment saw a slight decrease (-2 percent q-o-q and -5 percent y-o-y), suggesting companies are taking a more cautious approach in their expansion projects. This trend is also reflected on the modest increases seen on sales and profit, up by four percent and two percent; showing companies are being more cautious about taking on any extra payroll expenses.

Future Outlook

Despite the cautious approach taken by respondents towards some sectors and parameters, optimism levels are expected to remain stable with slight increases for the upcoming quarter. This is due to the recent positive signals from the local economic environment.

The stable outlook for the country combined with the recent signing of the Trans-Pacific Partnership, of which Vietnam is expected to be ASEAN’s biggest winner, present promising investment opportunities. The integration of the AEC (ASEAN Economic Community) at the end of the year is also expected to have positive effects and maintain Vietnam as an attractive destination for investment in ASEAN, despite the uncertainties faced by some of its neighbors.

The Business Optimism Index, released every quarter by Dun & Bradstreet, is considered a leading economic indicator for turning points in business activity and measuring business sentiment. The Index captures business expectations for the quarter ahead based on six parameters: sales volume, net profit, selling price, new orders, inventory, and employment. Sampling in the Index represents key business sectors including manufacturing, construction, wholesale, transportation, services, finance, mining and agriculture, according to their GDP contribution in each nation.

The ASEAN Business Optimism Index for Q4 2015 is out now and available as a complimentary download in the Asia Briefing Bookstore.

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