Published on January 13, 2006

Consumer spending should increase in the second quarter, boosted by greater confidence in both the economy and income prospects, reports the University of the Thai Chamber of Commerce (UTCC).

For the past five consecutive calendar months, the Consumer Confidence Index picked up, peaking at 88.7 in December from November’s 87.9. Still, December was the 18th consecutive month that the index was below 100, suggesting some pessimism about economic prospects.

Dean Saowanee Thairungrote attributed the rising index to several factors, such as the National Economic and Social Development Board’s economic-target revision for last year from 3.8-4.3 per cent to 4.7 per cent, the strengthening baht against the US dollar, the huge Thai export value and stimulus packages.

“Consumers should spend more, because they feel more confident about the economic situation. The situation will become clearer in the second quarter of this year,” she said.

Consumer confidence in the broader sense of the term could rise, but a separate survey by Thailand Marketing Research Survey (TMRS) showed that people in Bangkok may think differently. The survey, conducted last month and covering 507 people in Bangkok and the surrounding area, showed that Bangkokians were pessimistic about their income outlook and concerned about savings schemes.

The survey showed that 96 per cent of respondents set savings as their first priority. Of this group, 21 per cent saved 21-30 per cent of their monthly income; a similar percentage saved as much as 50 per cent. These groups reported an average income of more than Bt20,000 a month and are aged between 25 and 39.

“The survey shows that Bangkokians are less confident about their personal economic situation and future quality of life,” said TMRS director Sasiwimon Smittipatana.

While less concerned about the macroeconomic outlook and violence in the South, they are focused more on healthcare and energy-saving items. The TMRS survey also showed that 57 per cent of the respondents had delayed the purchase of high-value items like houses and cars, compared with 48 per cent in the previous quarter.

Thanawat Polwichai, director of the UTCC Economics and Business Forecasting Centre, cautioned that in the first quarter, consumer confidence would not improve much, due to worries about the prices of goods. But in the second quarter, the worry should subside once public-sector investment begins.

“Confidence should be spurred by the belief that future income will not be cut this year,” he said.

The Employment Confidence Index last month was 100.4, up from 99.8 last November, marking the first time in eight months that it passed 100 points. UTCC also expects the index to remain above the 100-point level throughout this year.

“Confidence should rise even further once the government investment projects kick off,” he said. Under the mega-projects, at least Bt300 billion will be invested in the agricultural sector this year alone.

However, possibly denting confidence would be an upward trend in interest rates, rising oil prices, a further decline in the US dollar and a widening current-account deficit. UTCC earlier expected this year’s deficit nearly to double to US$6.9 billion (Bt272 billion), from $3.5 billion last year.

Thanawat said that even though the US Federal Reserve Bank insisted on maintaining rates, US rates should rise 25-75 basis points. This should prompt Thailand to raise its policy rate by 150 basis points, he said. Meanwhile, the weak greenback should have a negative effect on the export sector, because Thai goods would become more expensive. Export growth could be slashed to 13-15 per cent this year, against the target of 17 per cent.

In addition, while oil prices have stabilised, a disaster or terrorist strike could hurt consumer confidence just as much, he said.

Petchanet Pratruangkrai,

Kwanchai Rungfapaisarn

The Nation

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