Bangkok--30 Nov--Grant Thornton
Released today by Grant Thornton, the “International Business Report (IBR): Thailand Focus” compares Thailand with 43 other countries across a range of indicators, including optimism/pessimism, revenue expectations, export outlook, employment, constraints, accessing finance, mergers & acquisitions, women in business, international trade relations and AEC readiness.
Global perspectives
The results reveal that global business optimism has fallen in the third quarter of 2012 with net 8% ofbusinesses optimistic for their economies over the next 12 months. Business sentiment for the next
12 months in Thailand is positive with net 22% of businesses optimistic, up from net 8% in the second quarter. The global economy remains delicately poised with uncertainty around the Eurozone crisis, the ‘fiscal cliff’ in the United States and the slowdown in China weighing on business sentiment. Business confidence in North America, Europe and Asia-Pacific all declined in Q3, although the ASEAN region bucked the trend.
Local insight
GDP growth in Thailand in 2012 is likely to be around 5.5%, a figure which has been revised down several times during the year. The European financial crisis and worldwide slowdown have affected Thailand’s most trade-dependent economies — Europe, the US and even trading partners in Asia. Exports totalled $19.8 billion in August; a decline of 6.9% year-on-year whilst manufacturing production was down by 11.3% in the same period. The Import figure was driven higher by the imports of new machinery for flood recovery causing Thailand to record a trade deficit of $1 billion that month.
Ian Pascoe, Managing Partner of Grant Thornton Thailand added, “Thailand’s domestic programs including a rise in the minimum wage, a first-time car buyers programme, a controversial rice-pledging scheme for farmers and massive infrastructure projects in roads, railways and flood prevention measures in which the Government has been investing heavily, are somewhat offsetting the immediate effects of the decline in exports. These in turn have added inflationary pressures with a sharp rise in September to 3.4% from 2.7% in August.”
The net effect of the flood recovery and local stimulus is that business optimism in Thailand has risen markedly between Q2 and Q3, a rise of 14 points from 8 to 22. This is in comparison to an ASEAN rise of 5 points and a global decline of 15 points. However immediately prior to the floods last year, business optimism in Thailand was 42. So whilst optimism has increased, it is still less than 12 months ago.
Revenue expectations
The proportion of businesses expecting to increase revenue over the next 12 months slipped slightly in Q3, falling to net 46% from net 48% in Q2. The ASEAN average increased marginally to 53% in Q3 and the global average fell to 47%, down from 52% three months previously. When comparing this to business optimism, it would indicate that business leaders are much more confident in their own company than they are the general economic outlook.
Constraints
A “shortage of orders/reduced demand” is cited as being the greatest constraint on business expansion for Thai businesses (48%), significantly higher than the ASEAN average (31%), with “regulations/red tape” a close second (44%). However “a lack of availability of a skilled workforce” is the principal constraint for businesses across the ASEAN region (41%). This was also a significant concern in Thailand, rating 3rd (38%).
Mergers and acquisitions
Businesses in Thailand appear to view most of their growth opportunity as organic. In the next three years, 10% of Thai businesses plan to grow through acquisition, compared to 23% of ASEAN businesses and 29% of businesses globally. Just 3% are anticipating a change in ownership, far lower than businesses in the ASEAN region (9%). Thai businesses should be aware of this appetite for acquisition in the region as they may become targets too.
The majority of Thai businesses plan to finance their growth in their business through retained earnings with 22% expecting to use bank finance.
International trade relations
Businesses in both Thailand (49%) and the ASEAN region (55%) would like to see their government improve trade relations with mainland China. 18% would like to see better relations with India, and a further 48% with other Asia Pacific nations. Very few Thai businesses would like to improve trade relations with the US (4%) or Europe (3%). This is pragmatic as there is more growth in Asia however the US and Europe are still very significant trading partners of Thailand.
ASEAN Economic Community (AEC)
42% of businesses in Thailand support plans to introduce the AEC by 2015, although this is well below the ASEAN average (58%). The elimination of tariffs (57%) is expected to be the key benefit provided by the AEC for Thai businesses. Overall, businesses in Thailand are less positive about the benefits the AEC would bring compared with their peers across the region and this appears to be fuelling a lack of preparedness about the opportunities around the region, but also the potential domestic threats of new entrants in to Thailand.
The Unknowns
A global unknown — the extent of the slowdown in the economies of Thailand’s largest trading partners is the first and obvious when it comes to Thailand’s economic outlook given its reliance on manufacturing. For example the Eurozone and China account for 10% and 12% of exports respectively.
The second is regional. ASEAN’s growth is one of the few bright spots in the world economy. As reported above, data from the report shows that with the onset of the AEC, Thailand’s businesses are much more ambivalent, and therefore not as prepared compared to their neighbours in ASEAN.
The third is domestic. The government’s populist schemes are having some unwelcome and potentially serious side-effects. The rice-pledging scheme, in addition to costing $3bn a year to the economy, is based on a deeply flawed business model which is rapidly causing Thailand to lose its status as one of the world’s largest rice exporters. The long term damage of this is hard to predict. Moreover, household debt in Thailand is now between 45-50% and rising quickly, well beyond the understood “safe” levels of around 28%. The very schemes designed to help the lowest earners seem to be having the opposite effect.
Looking ahead
In general, the outlook for Thailand remains positive. The 2013 forecasted growth of around 4.6% is still very healthy where most economies are stagnant at best.
Mr. Pascoe concluded, “Thailand’s geographical and economic position within ASEAN and the growing Asian region, coupled with its developed infrastructure, ensures it remains an attractive investment destination. Foreign Direct Investment is forecast to grow, which should be assisted by the reduction of the corporate tax rate to 20% from the 1st January 2013. Inflation will remain high at around 3.5%. Whilst that is higher than desired, it is still manageable for an emerging market. We see from 2014 thru 2017, there continues to be forecasted growth in GDP averaging around 4.8%, and so Thailand continues to be a relatively bright spot in an otherwise economically grey worldwide economy.”
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