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Cash flow still a worry for SMEs, says TMB Analytics

Sentiment index rises as costs decline

Small and medium-sized enterprises' worries over political uncertainty has been eased but they still worry about how to manage their businesses, especially maintaining adequate cash flow, said Benjarong Suwankiri, head of TMB Analytics, the research unit of TMB Bank.

The TMB-SME Sentiment Index is based on a survey of 1,000 businesses across the country on their confidence currently and for the next three months. The survey ran from April to May 20, before the coup on May 22, so the index in the second quarter stood at 36.6 points out of 100, unchanged from the first quarter. However, the index for the next three months improved to 55.7 points from 51.1 points in the previous quarter, the first increase since the political unrest began with anti-government protests in Bangkok last October. Scores above 50 indicate positive sentiment.

SMEs are confident that their operational results over the next three months will improve, with their operating costs declining thanks to the economic-enhancement plan of the military's ruling National Council for Peace and Order (NCPO).

According to the survey, the confidence index for operational performance in the next three months improved to 69.2 points.

"After the coup on May 22, we closely tracked the confidence of SMEs in June again, and we found that their level of confidence climbed to 37.6 points from 32.8 points in May. SMEs' confidence for the next three months from June surged to 62.2 points from 51.7 points in the previous month; 62.2 points is the highest figure in the first nine months," Benjarong said.

In the June survey, the proportion of SMEs that were worried about the political situation declined to 24.9 per cent from 45.6 per cent in May, the lowest figure within the first six months of the year.

However, more SMEs were worried over their business prospects in June, at 38 per cent compared with 22.8 per cent in May.

He said that even though the political uncertainty is resolved for now, business operations in the second half remained an issue, as SMEs wonder if cash flows can return to healthy levels.

"SMEs worry over their operating costs because their business partners have delayed payments, tightening cash flows. Such problems could be eased if the NCPO helps SMEs access funds through the Thai Credit Guarantee Corporation," he said.

Growth may exceed 2.5 per cent

Benjarong said TMB Analytics had maintained its forecast for this year's growth in gross domestic product at 2 per cent, even though business sentiment had recovered from the previous quarter on expectations that the country would have a functioning government this half.

TMB Analytics expects GDP in the second half will expand by 4.2 per cent from zero growth in the first half, meaning full-year growth will be 2 per cent.

The National Economic and Social Development Board has said it is ready to adjust 2014 GDP growth projection in August above 2.5 per cent. Benjarong echoed the NESDB, 2.5 per cent growth was likely if private and public investment can get under way quickly in the current half.

He noted that despite the brighter economic outlook for the second half, the remaining risk factor for business was the volatility of the baht while it is unclear when the United States will raise its benchmark interest rate.

"Even though the US sent a clear signal that it would taper quantitative easing by the end of this year, the market did not know when the US would raise its interest rates, which has influenced currencies. Therefore, even though the baht currently is stronger, we believe it could weaken again to our projection of 32.5 against US dollar," he said.

The economist added that GDP in 2015 could grow by 4 per cent, driven by key engines including public and private investment and domestic consumption. Based on this projection of 4-per-cent growth, the Bank of Thailand's policy rate next year is expected to be adjusted in line with the upward trend of other countries' interest rates, partly driven by the US increase.

TMB Analytics predicts that the BOT's Monetary Policy Committee will raise the policy rate by 50-75 basis points throughout next year.


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