Small and medium-sized enterprises (SMEs) are set to slash production and shed workers due to growing pressure from high oil and raw material prices, rising interest rates and political chaos, claims a survey by the University of the Thai Chamber of Commerce.

The Manufacturing Production Index for SMEs is forecast to drop to 98.94 in the second quarter. An index below 100 means SMEs are more pessimistic than optimistic about their manufacturing economy.

While calling for the government to subsidise oil prices and end the political uncertainty, respondents in six industries believed the negative factors would extend to the end of this year.

According to the survey of 500 SMEs, 90 per cent said they thought economic growth in the second quarter would drop. Spiralling oil prices and rising raw material costs were blamed the most, followed by the political turmoil.

In addition, rising interest rates and the baht's appreciation have decreased the competitive advantages of SMEs, the survey said.

"Those negative factors will mark a difficult year for Thai SMEs," Aat Pisanwanich, director of the SME Study Centre (SMEC) of the University of the Thai Chamber of Commerce, said yesterday.

Evidence of a reduction in consumption, came yesterday from the Revenue Department, which reported that value-added tax collection in April was Bt1 billion below its target, due to a fall in imports. Overall, however, the department's tax collection was Bt300 million above target.

Sirote Sawasdipanich, the department's director-general, said the situation was not worrisome because VAT collection continues to grow at 15 per cent a year, which indicates strong domestic demand.

The SMEC reported that skyrocketing energy and raw material costs and

the political crisis are key factors

behind the slowdown of the SME growth index.

The figures in the first five months also showed that a drop in domestic consumption would lead to economic deceleration, Aat said.

Due to SME pessimism and the consumption drop, the country's gross domestic product will grow below 4 per cent, said Aat, adding that whether or not caretaker Prime Minister Thaksin Shinawatra returns to office, the country's growth would not recover.

"Activists might rally again in protest at the government's administration and that will directly affect the confidence of both consumers and foreign investors in the Thai economy," said Aat.

Of the total GDP growth, SMEs production has a direct weight of 38 per cent or Bt2.7 trillion of the country's Bt7-trillion GDP. The number of SMEs in Thailand is currently about 2.5 million and growing.

The SMEs are concerned over economic growth in the present circumstances. They will cut their manufacturing capacity because of the slowdown in consumption.

The survey focused on six sectors: food and beverages; leather products; textiles and garments; automobiles and parts; chemicals and plastics; and rubber. The food and beverage and leather products index faced the biggest drops while the index of the remaining goods was higher than 100.

The decrease in domestic consumption and high competition from foreign goods flooding into the country has had a direct effect on the index.

If the SMEs manufacturing index continues to fall, it will result in a decrease in employment and will even force SMEs to shut down operations. Only large-scale enterprises will survive because the government provides support for them instead of small and medium players.

It is estimated that the 19 million workers who work for SMEs account for 80 per cent of the country's total employment.

To ensure survival, Aat said SMEs want the government to urgently help solve their problems, particularly the oil price rise and political turbulence.

In addition, Aat urged the government to accelerate the mega-projects and budget disbursement and to conclude free-trade agreements that will benefit SMEs.

Meanwhile, Aat said the country's export growth this year will not exceed 14 per cent, less than the government's target of 17.5 per cent.

In the third quarter, export growth may not exceed 10 per cent because the baht's appreciation will cause a decrease in purchasing orders and also cut total income, he said.

Petchanet Pratruangkrai

The Nation