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Consumer confidence sinks, lowest since Nov 2001: UTCC

Thanavat

Thanavat

Thailand is moving closer to economic recession because of the ongoing political uncertainty, while the Consumer Confidence Index (CCI) in April hit the lowest point in 12 and a half years, the University of the Thai Chamber of Commerce said.

UTCC saw negative economic growth (minus-1 per cent) in the first quarter and believes that the second quarter will most likely follow suit if exports do not pick up as expected and domestic consumption continues a downward spiral.

UTCC's previous prediction for growth in gross domestic product in the first half of the year was 0-1 per cent.

"The UTCC is still unsure if there is going to be negative growth from quarter to quarter since there are many factors such as exports that are still unclear," said Thanavat Phonvichai, director of the university's Centre for Economic and Business Forecasting. "But if both quarters in the first half of the year are negative, the chance for a year-on-year economic recession is more apparent."

Thanavat said the main reason for the negative growth in the first quarter was largely slower-than-expected export recovery, a slump in tourism, and the low prices for crops such as rice and rubber, which led to lower incomes and put a bigger dent in people's purchasing power.

He said things started to look better at the start of the second quarter after the lifting of the state of emergency in Greater Bangkok, with more tourists entering the country and a gradual recovery of exports.

But the judicial removal this week of Yingluck Shinawatra as caretaker prime minister has worsened the political tension and uncertainty.

"The prospect of having two protest groups [the People's Democratic Reform Committee and the United Front for Democracy against Dictatorship] on the streets at the same time has made the situation more fragile, and the possibility of violence is also looming larger, as seen by the attacks after the Constitutional Court's verdict," Thanavat said.

He said that if the political situation continues, domestic consumption would continue to slow alongside economic growth.

He noted that if there is no permanent government to stimulate the economy, investors - both Thai and foreign - will continue to suspend their activities, and the escalation of political tension will make tourists think twice before visiting the Kingdom.

Exports might also be affected if the situation turns more violent, since foreign operators might doubt the Thai exporters' ability to fulfil their orders, he added.

Thanavat said that if there is no permanent government to simulate the economy and bring back investor confidence, economic growth would be lower than 2 per cent this year and only 0-3 per cent in 2015. But if there is a permanent government and things get back to normal by the third quarter, GDP should be able to grow by 2-3 per cent this year and around 4 per cent in 2015.

As for consumer confidence, Vachira Kunthawethep, a UTCC economist, said the CCI had continued to dip over the past 13 months and had hit lowest point since November 2001 because of the prolonged political turmoil, the sluggish economy, and uncertainty over the global economic recovery.

The UTCC's CCI for April stood at 67.8 on a scale of 100, down from 68.8 in March.Vachira said this showed that people were still wary about the political uncertainty, which might exacerbate the slump in the economy while the cost of living continues to be at a high level, according to consumers.

He said the positive factors for domestic consumption were the SET Index rising by 38.68 points in April compared with March, the Bank of Thailand's decision to hold the policy interest rate at 2 per cent, and the baht staying stable at 32.20 per US dollar.

Another positive factor is the stable diesel price, which continues to hold at Bt29.90 per litre.

He said the negative factors that continue to bother most consumers were the political situation and the absence of a permanent government, the delayed payments to farmers in the rice-pledging scheme, and the slowdown in exports (down 3.1 per cent when compared with March).

The rising price of gasohol, low crop prices, and rising inflation also contributed to the rising cost of living.

Vachira said the April CCI was based on a survey of 2,253 people, and the negative factors mentioned had contributed to consumer confidence in the economy falling from 58.7 in March to 57.7 in April (sub-index score).

The sub-index on job prospects was 61.9, down from 62.9, and on future income it was 83.8, down from 84.9.

Looking at a breakdown of consumers' readiness to spend, the survey found that for new cars the index in April was 90.8, down from 92.7, for house purchases it was 56.6, down from 58.2, for going on vacation it was 66.7, down from 69.5 (even with the Songkran festival). For investment by small and medium-sized enterprises the sub-index was 57.4, down from 60.7.


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