German firms expect Vietnam’s medium-term economic recovery

Optimism remains

The latest survey results show a higher level of German business trust in the Vietnamese economy compared with their trust in other Southeast Asian economies. Specifically, while 82 percent of German investors have no option but to lower their revenue growth targets for the 2020 fiscal year due to Covid-19, 59 percent of them remain optimistic about business development in Vietnam. In the medium term, 72 percent of German businesses will continue investing in Vietnam and 27 percent will continue recruiting new employees. Market demand and economic policies will be major challenges to the development of German businesses in the next 12 months.

Regarding Covid-19’s impacts on Vietnam’s macroeconomic situation, 43 percent of German businesses recognize the pandemic’s negative impact on the Vietnamese economy despite its impressive growth and existing advantages. One of every five businesses affirmed the belief that the Vietnamese economy will recover and resume its growth in the medium term.

German businesses noted that the Vietnamese government has deployed relief packages to help businesses overcome the crisis, and said prompt implementation of business support policies are expected to help accelerate economic recovery and growth.

Most businesses remarked on the adverse impacts of Covid-19 on their operations due to the cancellation of major events and the postponement of tourism activities. The pandemic has also seriously affected all service sectors, especially logistics, trade, restaurants and hotels. Shops, schools and kindergartens have closed. Workers have to take annual leave and stay home to prevent the spread of the disease. Supply chains have been interrupted. All these elements are burdening the entire economy and businesses.

Due to these interruptions, 14 percent of German companies predicted a decline in 2020 business results compared with 2019. Meanwhile, 59 percent forecast their 2020 results would be equivalent to 2019’s. Only 27 percent expressed optimism about 2020 outcomes (against 77 percent in 2019).

However, German businesses and investors are more optimistic about their development in Vietnam compared with other countries in Southeast Asia.

72 percent of businesses to continue investment

This year, most businesses have lowered their annual financial targets. Survey results show that 82 percent of German companies have lowered their 2020 revenue targets due to Covid-19. Nine percent predicted their revenue would fall by more than 50 percent, and 63 percent forecast a 10-50 percent decline.

Most German companies in Vietnam have experienced the pandemic’s impacts but at different levels and in different aspects. Eighty-six percent said immigration and travel restrictions have heavily affected their operations; 59 percent said the pandemic has interrupted their supply chains; 55 percent have cancelled orders and 50 percent had no option but to put off indefinitely new investment plans due to the escalating pandemic.

However, 72 percent of German companies in Vietnam have chosen to continue their investment plans and 27 percent say they will recruit new employees. These positive developments stem from government efforts to improve the investment environment as well as Vietnam’s extensive free trade agreements, especially the EU-Vietnam Free Trade Agreement coming into force this year, which is expected to create an impetus for the Vietnamese economy to recover, attracting more investors from Europe and Germany in the medium and long term.

The year 2019 was said to be successful for trade and investment relations between Vietnam and Germany, with bilateral trade reaching 14 billion euros. Vietnam has become one of Germany’s most important Southeast Asian partners and has attracted more than 350 German foreign direct investment projects.

The year 2020 is forecast to be challenging for the global economy as the Covid-19 pandemic keeps spreading and its development is hard to predict. In Vietnam, despite timely government efforts to prevent the spread of the disease, its impact on all aspects of socioeconomic life, as well as on the operations of German businesses in the country, is inevitable.

Thanh Thanh