Covid-19 dampens Vietnam businesses’ optimism: Survey
Over 80% of CEOs taking part in a survey noted Covid-19 would have a negative impact on their business this year.
The Covid-19 epidemic in Vietnam has led to a huge drop in overall business confidence for 2020 as 55% businesses predicted the economy to go downhill compared to 18% last year, according to Infocus Mekong Research in its annual 2020 Vietnam Business Community Sentiment Index.
The survey of 242 CEOs, which is part of the report, revealed their assessment towards the impacts of Covid-19 over the past 45 days globally and in Vietnam.
|Source: Infocus Mekong Research.|
“I have been living in Vietnam for over 26 years and have never seen such a huge plummet in overall confidence, not even during the 2010-2011 real estate bubble burst,” noted Ralf Matthaes, managing director of Infocus Mekong Research and host of the survey.
2019 was a positive year in Vietnam for business with a 6.5% GDP growth, record export turnover, foreign direct investment (FDI) and inflation tamed at 3.5%.
Considering consumer confidence measured in December of 2019 for 2020 was very high, with 70% of consumers perceiving the economy to be better in 2020, assumption would be that business sentiment follow suit. However, 84% of those surveyed noted Covid-19 would have a negative impact on their business this year.
“It is still early days living with Covid-19 but from a macro perspective its duration will dictate whether we are simply experiencing a blip in macro activity or whether we are at the start of serious and prolonged downtown. As this is a new virus, timings are hard to forecast, but based on severe acute respiratory syndrome (SARS) and available information on both new cases and actual severity, we would be hopeful that much economic activity will be returning to normal by the end of the second quarter in 2020,” Chris Hunt, manager director of HSC Vietnam, was quoted as saying in the report.
|Source: Infocus Mekong Research.|
“Early indications suggest the Hotel/ Hospitality, Retail, F&B and Manufacturing/Logistics sectors are among the hardest hit. It remains to be seen how severe and how long the virus lasts, real estate developers that are already highly leveraged may need to find additional funding or consider JV partners or selling assets. History suggests that after similar events, business confidence rebounds quickly, resulting in a positive impact on the market,” asserted Stephen Wyatt – Country Head – JLL Vietnam.
Businesses with heavy reliance on China will obviously feel the impact and many, even severely. Frederick Burke, managing partner of Baker Mckenzie, explained in terms of Vietnam's overall economic development strategy, it's "steady as she goes" with the country's drive to integrate into the global economy by means of bilateral and multilateral free trade agreements, will continue to create new opportunities for trade and investment over the coming years.
“In the short term, however, 2020 will see challenges for many businesses that may not be strong enough to withstand the shocks to the supply chain and credit availability. The tourism industry was the first to feel it, but even manufacturing for export is starting to feel the pain as imported components from China are getting held up in China's shut down. Resiliency in supply chains has already become a theme and now it's front and center,” added Burke.
Additionally, with the daily Covid-19 warnings from the Ministry of Health, fear has struck at the hearts of Vietnamese consumers, reducing overall traffic flow and deadening demand. When asked what impact Covid-19 will have on their domestic revenue streams for 2020, an average revenue loss versus budget was pegged at -13.48%.
|Source: Infocus Mekong Research.|
The report revealed the big winners in 2020 shall be on-line shopping/ delivery services, the automotive industry, packaged foods and potentially, homecare products, as consumers spend more time at home and less time in public places.
Though on-line shopping only represents roughly 5% of the total retail value in 2019, today 76% of all consumer have purchased on-line in the past three month and growth rates are above 20% annually. With Covid-19 impacting shopping behavior, by consumers wishing to avoid crowds, on-line services shall continue to grow and also recruit new customers to their services.
Forty-seven percent of all consumers noted spending more on transportation in 2019.
Furthermore, last year was a peak year for car sales and 19% of all loans was for car purchases, it stands to reason that the Automotive industry continues its rapid growth.
In terms of investor sentiment and the stock market, Covid-19 actually provides ample opportunity, as “Investors are looking for a reason to be “risk-on,” stated the report.
There is a sense of over caution and thus, the Vietnamese stock markets have not had to endure a significant decline. But as soon as a major economy such as China announces that Covid-19 is under control, we expect capital markets around the world including Vietnam to recover and possibly surpass levels seen at year end 2019,” said Andy Ho, managing director/chief investment officer of VinaCapital, in the report.
“2020 will certainly dampen short term gains for Vietnam, specifically in the consumer-based sectors, as consumers proceed with caution in the year of the rat. However, as one of the most optimistic, resourceful and resilient peoples in Asia, this should only be a blip on Vietnam’s overall economic trajectory,” added Matthaes. “Covid-19 will not derail Vietnam’s amazing rise to the top of the Asian economic food chain”.
Bao Nguyen, president of the Canadian Chamber of Commerce Vietnam, succinctly concluded: “Life goes on, must go on and will go on. Vietnam continues to have all of its stars aligned, is and remains a fantastic business destination that deserves all the growing attention it is getting around the globe. Growing pains are normal, having doubt is smart, not exploring the opportunities that Vietnam continues to offer is not.”
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