Bangkok--11 Nov--Grant Thornton Thailand
According to Grant Thornton’s International Business Report (IBR) for Q3, business optimism in Thailand has risen substantially from the second to the third quarter. This continues the upward trend seen over the last 12 months. In Q2, Thai business confidence was 13%, however in Q3 it rose sharply to 71%.
The optimism figure reflects measurements across a number of categories. Thai business optimism rose in revenue expectations, exports, employment, profitability, investment in new buildings, investment in plants and machinery, increases in R&D, an increase in finance, a decrease in red tape and the availability of skilled labour.
However, there was continued concern relating to; a shortage of orders, transport infrastructure, growth initiatives, rising energy costs, salary rise expectations and ICT infrastructure.
Within our major ASEAN neighbours, optimism remained the same in Indonesia, reflecting a “wait and see” sentiment for the new President to take office. In Singapore, optimism rose from 59% to 66% Q2 to Q3 and in Malaysia from 49% to 50%.
Andrew McBean, Partner of Grant Thornton in Thailand and a specialist in the AEC commented, “Whilst it is no surprise that Thai business optimism was higher in the third quarter, the degree of change was sharper than expected. However, it has to be sustained. Not since Q3 2010 through to Q3 2011 have we seen a period of sustained business optimism.”
“This may simply be the result of a ‘honeymoon period’ where there has been some pleasing rhetoric from the new government. Substantial, deep and institutional economic reforms are critical to ensure Thailand regains its economic strength, which in turn will position us strongly for the AEC. The return of business optimism, after many tumultuous quarters, is a very welcome first step.”
However, the research also showed a shift in the economic balance of the eurozone, a major trading partner of Thailand, which is undergoing significant change. German business confidence took a sharp nosedive in the last quarter, threatening to drag the world’s biggest trading block downwards. According to Grant Thornton’s International Business Report (IBR), the changes uncover a eurozone ‘see-saw effect’, with prospects for growth rising in the economies of Spain, Ireland and Greece just as Germany’s and France’s fall – posing fundamental questions about whether the eurozone can accommodate the varying fortunes and trajectories of its members.
The IBR, a global quarterly survey, reveals that in the last three months optimism across the eurozone fell from net 35% to just 5%. The overall proportion of firms citing shortage of orders as a growth constraint has also risen, and expectations for increased employment are down from 17% to just 6%.
At the same time business optimism in Germany has plummeted from net 79% to just net 36%. This follows a contraction in the German economy in Q2, amid fears of the impact of the Ukraine crisis on trade and the energy supply. The proportion of firms citing a lack of demand as a constraint on growth has jumped from just 6% to almost one in four. Expectations for employment have also dropped into negative territory for the first time since 2010 – the lowest of all 34 economies surveyed. A continued slide in optimism in France, the bloc’s second biggest economy, is also contributing to the eurozone malaise.
Andrew continued, “We knew that the economic environment in Germany had worsened, but the severity of the change in outlook is clearly a concern for businesses, and for us in Thailand. It is facing triple trouble in the shape of falling business confidence, shrinking order books and a weak outlook on jobs. This will have a knock-on effect across the rest of the eurozone.
“Policymakers need to address this as a matter of urgency. Germany has a sizeable fiscal surplus, which allows it some room for manoeuvre, and could invest in infrastructure to stimulate growth, as recently suggested by the IMF. The ECB has committed to boosting liquidity across the eurozone financial system by kick-starting a round of asset purchasing this month, in response to weak economic growth and business investment, but it could be too little too late. The euro region has shied away from full-blown UK or US-style quantitative easing until now, but tough times may call for bolder measures.”
According to the IBR, the outlook in some of the eurozone countries who suffered the most during the crisis is now actually improving. Business expectations for increased revenue in the next 12 months are up in Greece (50% to 70%) and Ireland (58% to 70%), while a growing number of firms in Greece, Ireland and Spain also expect higher profits. Greek and Spanish businesses are also much more bullish about employment over the coming months, a welcome change despite overall unemployment levels remaining high.