Increasing concerns over inflation and the weakness of the dong have dampened confidence in Vietnam's business prospects, the European Chamber of Commerce in Vietnam (EuroCham) said at a survey release function on Monday.
Results of the third quarterly EuroCham Business Climate Index survey, which was conducted late last month, showed that business confidence and outlook among European companies in Vietnam has fallen by 9 index points since the last survey to 70 points on a 0-100 scale.
Compared to the last survey, European businesses made more cautious assessments this time, although the responses remained largely positive.
The number of businesses describing their current situation as "neutral" rose from 19 percent to 28 percent while responses stating a "good" or "excellent" business situation came down to 56 percent from 64 percent last time.
EuroCham said its members provided mixed responses to a question on business outlook for Vietnam. While 51 percent had a "good" or "excellent" comment on the business outlook for their enterprises, it was a big drop compared with 72 percent in the last survey.
Meanwhile, companies holding a "neutral" business view increased sharply at 33 percent, up from 20 percent; and those with a negative business outlook doubled from 8 to 16 percent .
The survey showed that high inflation was a major concern for European businesses with 72 percent of the respondents expecting it would reach more than 10 percent this year. This figure rose significantly from just 47 percent having such expectations last quarter.
As for the dong/USD exchange rate, 52 percent projected the dong to depreciate further by 6-8 percent or remain unchanged by mid-2011, while 57 percent expected the currency to weaken by 8 percent or more against the greenback by the end of the year.
Matthias DÃ¼hn, Executive Director of EuroCham, said EuroCham members were increasingly concerned about the volatile macroeconomic environment in Vietnam.
"EuroCham therefore believes the key challenges for Vietnam's leadership in 2011 will be maintaining investor's confidence in macro-economic stability, in particular by balancing carefully growth and inflation, and emphasizing growth in the added-value industries," he said.
Alain Cany, chairman of Eurocham, said, "Vietnam is in the minds of European businesses. However, a lot of question marks about time, inflation, production costs and stability of the dong have confused investors and made them more hesitant to come to Vietnam."
As a result, many investment projects have been left behind and were not moving as fast as they could, he said.
He warned the country could see a significant drop in FDI if there was not any improvement in its macro-economic situation in the coming months.