Bangkok--18 Jul--Grant Thornton
New research from the Grant Thornton International Business Report (IBR) reveals that the optimism of business leaders in Thailand remains well below the level seen before the floods in late 2011.
Whilst business optimism rose to net 22% in Q2 up from 14% in Q1, this is well below the levels seen in the first three quarters of 2011 when optimism averaged 42%. Since then, quarterly optimism has averaged just 16%.
The results compare pre-flood optimism with post-flood pragmatism where optimism has been more measured because of the initial effects of the floods, the neutral performance of major world economies and trading partners, and more worrying local developments such as the effects of the rice pledging scheme on the economy, rising household debt and the fear of a lack of transparency in Thailand’s mega infrastructure projects.
Businesses are also less confident about growth in their own operations. Net 28% expect revenues to grow, and net 28% see profits climbing over the next 12 months, but this compares with 56% and 52% respectively in the same quarter of 2011. Profitability expectations across 2011 averaged 50% compared to 39% over the past four quarters.
Mr. Ian Pascoe, Managing Partner at Grant Thornton Thailand said: "Thai business leaders are being pragmatic. Internationally growth in the major economies is still anaemic, China continues to slow, and central banks are starting to test markets about a possible reduction in their stimulus measures.”
“Meanwhile locally, companies are feeling the full affect now of the earlier rise in the minimum wage and household debt is increasing markedly. The rice-pledging scheme is being continued by the government despite huge losses to the revenue and unknown long-term damage to the rice industry farmers. There is concern over the feasibility and funding of some of the transport projects and the central bank is lowering their GDP estimates.”
The slowdown in regional heavyweight China is also apparent in the IBR figures, where net 4% are optimistic about the economic outlook, down from 19% in Q1. There is no coincidence therefore that falling demand has emerged as a major growth constraint Thai businesses are reporting, cited by 51% of respondents over the past four quarters. However the most significant constraint on Thai businesses was given as economic uncertainty at 60%, well above both the ASEAN average of 43% and global average of 41%.
Whilst key export markets such as the European Union remain weak, and the slowdown in China — which remains our single largest export market — has negatively affected Thailand, exports climbed by 8.3% in January-March this year compared with 2012. This can be attributed to the improvement in Japanese business optimism which helped balance the negative “China effect” on Thai manufacturing.
Mr Pascoe added: "Caution is the key watchword. Some of these more negative factors have been offset against continued robust FDI and the reduction in the corporate tax rate. However, Thai businesses continue to be more concerned over a number of local, regional and worldwide factors than their peers around the world. The Infrastructure projects will help stimulate the economy but that may not be enough to return Thai business optimism to pre-flood levels."
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Lakpilai Worasaphya | Senior manager | Marketing & communications
Grant Thornton
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