German firms report confidence in in Vietnam's economic recovery

German businesses are upbeat about Vietnam's economy in the medium term

Despite the COVID-19 epidemic, Vietnam recorded economic growth of 2.9 per cent in 2020 and is expected to achieve a growth rate of 7.5 per cent this year. The simultaneous implementation of the EU-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will help Vietnam's GDP increase by up to 3.2 per cent in the decade 2021-2030.

Vietnam is still one of the countries with the fastest economic growth in Southeast Asia. Foreign-invested enterprises, especially German businesses also show optimism about Vietnam's economy in the medium and long term.

German business leaders in Vietnam maintain positive economic expectations as well as outlook on their situation in Vietnam and they look forward to a year of recovery in 2021 and 2022. Vietnam will become a strategic investment destination in the process of restructuring the global and regional supply chain, a potential domestic market to attract international corporations.

"While 46 per cent had a positive view of the local economic development in 2020, 66 per cent expects a significant improvement in 2021. One-third of survey participants think that the economy of Vietnam will recover in the first half of this year, 30 per cent says that the recovery will happen next year, in 2022," says the report.

In addition, German businesses operating in Vietnam assess both their own business situation and future business expectations significantly better than in 2020. 55 per cent rate their current business situation in Vietnam as "good" and 11 per cent as "poor".

The great increase in business expectations is positively surprising. While the positive ratings rose from 36 to 55 per cent, the number of negative ratings fell from 23 to 11 per cent. Investment and employment intentions grow 47 per cent as German companies in Vietnam intend to expand their activities in Vietnam and 50 per cent assume an increase in employment in 2021/2022.

There is a great increase in business expectations of German investors in Vietnam

These results show that the Vietnamese government has taken decisive and forceful action against the impact of the corona crisis. These measures should be taken as fast as possible to counter the economic impact of the coronavirus, in order to bring the economy back onto a growth path as quickly as possible.

Moreover, the Vietnamese government creates the most favourable conditions for foreign investors and businesses, as well as the EVFTA and this committment will boost the economic growth of this country and attract more investors to Vietnam. Vietnam has been implementing a number of activities and effective methods in order to achieve the dual objectives of promoting socio-economic development and effectively preventing epidemic in the “new normal” condition of Vietnam. However, there are also some challenges for German investors to expand in Vietnam, particularly concerning the growing lack of qualified workers in Vietnam. After 18 per cent in 2020, 42 per cent of companies cited this as the greatest factor of uncertainty for their businesses in 2021 in Vietnam.

Other issues such as low demand (42 per cent) and economic policy (36 per cent) threaten their businesses here. Another factors that might affect German businesses in Vietnam are financing, legal certainty, and infrastructure.

The pandemic has affected local and German businesses and caused a decline in their business performance. Factors such as travel restrictions, reduced consumer demand for products and services, the cancellation of trade fairs and events hurt German companies in Vietnam. Due to this, 67 per cent of German participants would diversify their supply chains by finding additional suppliers, changing delivery routes or increasing their inventory.