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Economy trots tentatively into Year of the Horse

Challange year 2014

Challange year 2014

2014 will be another challenging year for business with the domestic political unrest likely to be prolonged and the global economic recovery likely to be slow.

Various sectors also need to prepare for regional market integration under the Asean Economic Community next year, at a time when skilled workers are in short supply in the labour market.

Here are the outlooks for each sector for the Year of the Horse:

Export

The International Trade Promotion Department and the Economic and Business Forecasting Centre have cited the uncertainty of the global economic recovery, internal political conflict - including the possibility of a prolonged term for a caretaker government - the volatile exchange rate and a shortage of labour in many industries, particularly skilled labour, as major concerns for traders.

Rising costs of production, energy, electricity and transportation will also make life tough for manufacturers and exporters.

A natural disaster could be a two-edged sword, causing crop prices to climb but cutting production.

Auto

Although the market has returned to normal now that the effects of the first-car scheme have faded, it is difficult to predict what this year will bring.

There are three major factors that will determine whether the forecast will be realised, Pitak Pruttisarikorn, executive vice president of Honda Automobile (Thailand) Co, said last week.

The rate of recovery will depend on consumer confidence, fluctuations in the local and world economies, and the Thai political situation. No one has a clue when the discord will be patched up.

"These three factors make it difficult for automobile companies to imagine what's going to happen next year," he said last year.

Repercussions from the first car scheme could also show up, as some buyers may not be able to maintain monthly payments, causing the finance industry to become stricter with loan approvals.

However, Thais are attached to their cars, and despite the major rallies early last month, many booked new models at the Thailand International Motor Expo.

"Thais can separate sadness from happiness and while they are concerned about the political situation, they are still deciding to buy new cars," said Kwanchai Paphatphong, the show's organiser. More than 42,000 orders were placed at the event, down slightly from the forecast of 50,000.

With as many as 132,000 first car buyers cancelling orders, the auto industry now has about 60,000 vehicles left in stock.

Surapong Paisitpatanapong, spokesman for the Automobile Industry Club, said this backlog could easily be cleared by raising exports. Auto sales are expected to come in below 1.3 million units this year, while exports could reach 1.25 million.

Telecom

According to an analyst, the big question is how cellular operators will be able to rapidly port their huge subscriber base to their new 3G-2.1-gigahertz networks before their 2G concessions expire. Now only about 30 per cent of the 94 million mobile phone numbers are signed up for 3G-2.1GHz.

The concession of Advanced Info Service will expire in March of next year, while Total Access Communication's will end in September 2018. TrueMove's came to an end last September but the company will continue to serve customers for one more year with the consent of the National Broadcasting and Telecommunications Commission (NBTC) to prevent service disruption.

Another question is whether the NBTC can auction the 4G-1,800-megahertz spectrum as planned late next year.

Banking

Declining consumption and the political unrest are pressuring loan growth down below 10 per cent after banks enjoyed more than 10 per cent over the past few years thanks to domestic consumption.

All banks have eased off lending, as they do not expect public spending for the Bt350-billion water-management and Bt2-trillion infrastructure projects to materialise due to the political instability. The lower public investment has an influence on private investment.

Liquidity is not a problem yet, but the test for this sector is to achieve loan growth and profitability amid the downsizing factors.

Retail

The dissipated purchasing power of consumers, especially of lower-income earners, will weigh heavily on this industry.

"Purchasing power has dived this year. I don't think it will get any better next year," Chatchai Tuangrattanapan, director of the Thai Retailers Association, said last year.

He said the National Economic and Social Development Board recently forecast GDP growth at only 2.7 per cent for last year, improving to about 4 per cent this year, which is lower than the average of 4.5-5.5 per cent.

He predicts the protracted political difficulty would be settled late this year, maybe in the third quarter. Consumer confidence would not recover until then.

"2014 will be a difficult year for all retailers, especially those selling consumer goods, such as hypermarkets and supermarkets. What they have to do is carefully monitor their expenditures and some cost-cutting measures need to be implemented to compensate for declining revenues," he said.

Buppa Lapawattanaphun, a strategic communications lecturer at the University of the Thai Chamber of Commerce, said consumers would make more rational buying decisions, rather than emotional. Most local retailers will adjust their strategy by slashing unnecessary costs.

The FIFA World Cup, the world's largest soccer tournament, which will be held in Brazil from June 12-July 13, would help boost sales of some products, such as electrical appliances, especially LED TVs and satellite dishes, sports apparel and goods, beverages and alcohol products, fast foods and home-delivery products.

Tourism

Government officials and company executives agree that the main risk is political instability, which can drag on this quarter.

If foreigners choose to take their vacations elsewhere, especially those who have never been here before, the hotel industry could get hit this quarter.

Tourism is regarded as a hero for saving the country at a time when the economy is facing a slowdown. Tourism makes up more than 10 per cent of gross domestic product. However, the drawn-out political rallies risk ruining the country's reputation as a top tourist destination.

Property

Local developers will face tough competition not only from existing players but also newcomers, especially joint ventures with foreign investors seeking to establish a regional hub here before the Asean Economic Community goes into full swing.

"Japanese investors have expanded in Thailand to be the hub for developing residences in this region," said Chanond Ruangkritya, president and CEO of Ananda Development, which has formed a joint venture with Japanese giant Mitsui Fudosan.

The industry also has to develop construction processes to cope with the labour shortage. Prefabrication will replace conventional on-site methods. It can reduce the need for construction workers and also speed up construction. This will help the industry to reduce construction costs.




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