President Thanapon Tangkananan warned last week that signs of negative growth had been apparent since the second quarter of 2006 and the anti-Thaksin Shinawatra protests.

The September coup on the back of sustained political uncertainty last year confined retail sales growth to 5 per cent, compared with 10 per cent in both 2005 and 2004.

The New Year's Eve bombings in Bangkok further dampened consumer confidence, he said.

"That incident has had a psychological impact on consumers. They've spent less time shopping and going out for meals. This has affected retailer revenues," Thanapon said. Without fiscal stimulus, the economy is hurting and that means a decline in consumer spending, he added.

A retail industry source said foreign investment into Thailand had slowed and many had decided to take capital to countries with "more favourable investment climates".

"Usually, foreign investors will place their money during the early part of the year. If in that period a country shows signs of instability they will not wait for things to settle down but will head to alternative destinations," he added.

The source cited the Bank of Thailand's capital-control measures as another encouragement for foreign investors to go elsewhere.

Thanapon added that a rebound in crude-oil prices was another negative for the retail sector because it would further dent spending power.

If crude prices move up this year there will be a significant drop in consumer purchases, he said.

"This quarter is a difficult time for retailers. If there is growth it will be in necessities," Thanapon said.

Government handling of political and economic problems is key to retailers' survival of the current hard times.

Tesco Lotus senior vice president Darmp Sukontasap said consumers were now more cautious about spending .

This has triggered heated competition for dwindling disposable income.

"As a result retailers have improved product quality and lowered prices to attract buyers," he said.

Kwanchai Rungfapaisarn

 The Nation