February 07, 2014 00:00 By Erich Parpart
Consumer confidence hit a 26-month low last month, according to a survey by the University of the Thai Chamber of Commerce.
The UTCC may revise down the country's economy growth forecast this year from 3-4 per cent to below two per cent in the second quarter, after finding out that 63.8 per cent of SMEs have been affected by the political crisis, with 20.9 per cent citing the plunge in tourism business in the current quarter. Domestic consumption and confidence have also declined.
The UTCC’s consumer confidence index (CCI) for January stood at 71.5 points, down from 75 points in December. This was the lowest in 26 months and was blamed on political uncertainty, a sluggish domestic economy and the uncertainty of a global economic recovery, it said. Any index score below 100 indicates low confidence.
Declining consumer confidence was due to many factors, including the ongoing protests, political uncertainty, the state of emergency in Bangkok declared by the government, problems in the rice-pledging scheme, a weaker baht, unbalanced trade, low crop prices, a rising cost of living, and the slower-than-expected recovery of the global economy, said Saowanee Thairungroj, president of the UTCC.
The January CCI was based on a survey of 2,253 people. The index has been on a downward trend for 10 months. Consumer confidence in the economy in January has a sub-index score of 61.4, down from 63.2 the previous month. The sub-index on job prospects was 65.1, down from 66.7, and on future income 88.1, down from 90.3 the previous month.
However, most respondents (55 per cent) still believe that the economy is performing at an average level, while only 35.6 per cent said it would get worse in the next six months.
People’s purchasing power has also been lowered by the problems in the rice-pledging scheme and the high level of household debt, along with the emergency decree, which have made consumers much more wary about their spending, Saowanee claimed.
Looking at a breakdown of consumers’ readiness to spend, the survey found that for new cars, the index in January was 97.3 (lowest in 23 months, and down from 99.5 in December), for house purchases 63.2 (lowest in 103 months, and down from 64.2), for going on vacation 75.9 (lowest in 55 months and down from 79.4), and SME investment 66.0 (lowest in 103 months and down from 68.7 a month earlier)
Thanavat Phonvichai, director of the university’s Centre for Economic and Business Forecasting, said the possibility of an absence of a permanent government for the next six months and the emergency decree in Bangkok were affecting the economy as a whole. Small and medium-sized enterprises are taking the biggest hit through rising costs and lower profits even though the SME competitiveness index showed signs of improvement last quarter when compared with the third quarter of 2013.
The three components of the SME competitiveness index – SME health, competency, and sustainability – all showed signs of improvement in the final quarter of 2013 but everything started to turn sour after the government declared a state of emergency in Bangkok, which has been paralysed for months by protesters demanding an unelected "People’s Council".
From a survey of 707 SMEs between January 27 and February 3, the centre found that the current political situation has started to take its toll on the economy, and small businesses were in need of help as rising costs and lower profits were causing a liquidity squeeze.
Thanawan said many SMEs were suffering from lower cash flows due to reduced sales and lack of orders, but most had not laid off their workers just yet. The survey also found no signs of business foreclosures, which means that SMEs can still hang on if the situation does not drag on for too long or turn violent.
The survey found that 63.8 per cent of SMEs were affected by the political crisis, and 20.9 per cent said they had suffered heavy losses. When comparing all business sizes, small firms are taking the biggest hit from the ongoing storm.
According to the survey, 61.8 per cent of small businesses said their total sales had decreased, while 45 per cent said their operation costs had risen since the state of emergency was declared last month. Meanwhile, 49.4 per cent of small business operators said orders for their products had dropped and 71.8 complained of dwindling profits. Nearly half – 48.5 per cent – of small operators noted reduced ability to repay their debts.