CEOs see no change in 3Q

Joint survey finds rising energy costs may force a hike in product prices

Half of the CEOs surveyed by Krungthep Turakij see no change in the economy next quarter.

In cooperation with Dhurakij Pundit University Research Centre, the survey showed that 68.4 per cent of the respondents plan to hike product prices if energy costs keep rising.

The survey, covering 402 CEOs, was conducted from February 25-March 8 to gauge the economic outlook in the second quarter. The CEOs were asked about potential effects of higher energy prices on the cost of doing business and how they plan to cope with such effects.

On the economic outlook, 21.4 per cent believe that the economy would perform better than the first quarter, 51.0 per cent believe it will stay about the same and 27.6 per cent believe it will perform poorer.

The sentiment index has been declining from 22 points in February to 13 points in March and 5 points in April (forecast). While the positive value of the index represents favourable sentiment, its downtrend reflects CEOs' concerns about the economy.

Such concerns were driven largely by four factors - rising costs induced by the higher national minimum wage, potential increase in energy costs, higher costs of raw materials and the appreciation of the baht.

Four business performance sentiment indices - revenue, cost, employment and liquidity - indicate that doing business in the second quarter will be a challenge.

The relatively flat revenue index implies that revenue will grow at a slow rate. The positive and rising cost index signals that CEOs expect their costs to be higher in March and April. Rising costs and slow revenue growth result in a fall in the liquidity index.

Such a pessimistic outlook also influences employment decisions. With a positive but falling employment index, slow growth in employment is expected.

On the factors that would influence business performance in the first quarter, the top five are wage costs, energy costs, raw material costs, domestic economic condition, and the baht's appreciation and the domestic political situation.

As for the energy costs with the most impact on business, 35.3 per cent said electricity, 28.2 per cent diesel, 14.5 per cent NGV, 11.3 per cent LPG and 10.7 per cent petrol.

On measures used to cope with the impacts from higher energy costs, 68.4 per cent cited price increases, 55.0 per cent reduction of non-energy costs, 47.1 per cent better maintenance of machinery and equipment, 30.7 per cent reduction in long-term investment, 25.9 per cent use of more energy-efficient machinery and equipment, 24.6 reduction in overall business process, 22.8 per cent more efficient logistical arrangements and 10.3 per cent use of alternative energy sources.

The results from this round clearly highlight the CEOs' concerns about higher costs, especially those induced by wages and energy prices. The severity of the drought can be another aggravating inflationary factor. If that happens, household spending might weaken and there might be another round of cost increases.

With no significant improvement in overall economic conditions in sight, the second quarter will be quite a challenge.