The Thai economy plunged into recession this year, contracting by 7.1% in the first quarter and 4.9% in the second. Though the rate of contraction in the national economy is slowing, with a Finance Ministry spokesman saying on October 28 the decline in the third quarter is expected to be between 3.5 and 4%; year-end shrinkage is expected to be around 3%.
If this result, which is far better than predicted earlier this year, is to be achieved it will be due in no small part to improving consumer spending, ministry spokesman Ekniti Nitithanprapat told a press conference.
“The latest economic data show a recovery in private consumption, private investment and exports,” Ekniti said.
Indeed, the country’s retail industry has shown itself to be far more resilient to the global financial crisis than many other sectors. According to figures released by the Thai Retailers Association in late October, the retail industry had expanded by between 3% and 4% in the first nine months of the year, compared to the same three quarters of 2008.
One of the reasons for these solid sales figures is that the public are apparently feeling more positive about the economy, with consumer confidence hitting an 11-month high in September, according to the results of a study by the University of the Thai Chamber of Commerce (UTCC). Though it still has to be seen if the recovery will be sustained, Thanavath Phonvichai, the director of the university’s Economic and Forecasting Centre, said things seemed to be looking up.
“The improving economic outlook helped boost confidence, and clearer signs that the economy will recover next year encouraged people to start spending,” Thanavath said on October 8.
Santi Vilassakdanont, the chairman of the Federation of Thai Industries, agrees.
“The improving economy has raised people’s confidence and spending,” he said on October 26. “There has been an increase in purchase orders during the final quarter of this year.”
A recent report by real estate advisor DTZ Debenham Tie Leung (Thailand) supported UTCC’s findings, saying that pent-up demand to spend will lead to positive growth in retail activity in the coming months, while approximately 24,000 sq metres of retail space is expected to be added to the existing stock in Bangkok.
Though rental costs for retail space remained steady during the third quarter, DTZ suggests there will be a spike in the coming months, a further reflection of demand pressure.
Another indicator that shoppers are starting to consume more came from Finance Ministry figures showing that imports of consumer goods fell by 10.1% year-on-year in the third quarter, against an 18.6% drop in the previous quarter. By comparison, total imports were down 16.9% year-on-year in September and 29.9% for August, while the nine-month result saw a 29% downturn.
The state is doing what it can to encourage increased spending, with the Bank of Thailand announcing on October 21 that it was keeping its benchmark interest rate at its record low level of 1.25%, a decision aimed at further shoring up consumer confidence, according to the bank’s assistant governor, Paiboon Kittisrikangwan.
“The economic recovery has just started,” Paiboon told a news conference. “Domestic consumption and private investment are in an early stage of recovery and uncertainty about domestic demand remains.”
Much of that uncertainty is generated by one issue, one that officials and industry professionals alike cite as being a potential threat to recovery in the retail sector, and indeed the economy as a whole – further political instability.
According to Thanapon Tangkananan, the president of the Thai Retailers Association, while the industry could see growth of 5% year-on-year in the last quarter of 2009, this was dependent on there being no major political upheavals.
“The fourth quarter of last year was quiet as a result of the unrest that hit the country at the end of the year. I think that this year’s fourth quarter will be much better if there is no unrest,” he told English-language daily The Nation on October 26.
This was a sentiment echoed by Finance Ministry spokesman Ekniti Nitithanprapat at his October 28 press conference, when he said rising political tensions stemming from recent anti-government gatherings could slow consumption and investment.
“The ministry’s projection that this year’s economy will shrink 3% does not include any political assessment,” Ekniti said.
Having proved remarkably resilient over the past 12 months, a year that has seen more than its fair share of political turmoil, it is just possible that the retail sector could help the economy to find a new equilibrium.
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