Rallies and Retail

Thailand

Economic News

22 Jul 2010
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Thailand's retail sector, which has been a leading force in the country's recovery from recession over the past two quarters, faces the risk of going off the boil if political unrest continues, with the threat of escalating antigovernment protests and rising tension undermining consumer confidence and whittling away at recent gains.



A campaign by supporters of former Prime Minister Thaksin Shinawatra to pressure the government into calling early elections, launched some seven weeks ago, has seen the red-shirted protestors occupy and all but shut down Bangkok's Rajaprasong shopping district, the capital's retail centre.



The long-running standoff between the government and opposition protestors is costing the economy dearly. Having contracted by 2.6% in 2009, the Thai economy was well on the way to meeting government predictions of 4.5% growth this year. The political unrest in the capital and beyond is now putting this target at risk, with Putthipong Punnakan, a vice-minister in Prime Minister Abhisit Vejjajiva office, saying in late April that if the occupation of Bangkok's retail district continued, 0.64% would be cut from GDP, putting the cost at around $1.5bn.



While the protests themselves only directly affect a small area, and just a minute fraction of the retail outlets in the capital, let alone the country itself, the impact on the sector is far more widespread.



According to Chatrchai Tuongratanaphan, a consultant for the Thai Retailers Association (TRA), the ongoing unrest will have a trickle-down effect on the retail sector if the protests continue, hitting turnover at top-end outlets first and then further across the industry.



"We expect the political unrest will significantly impact the sales of upscale department stores in two to six months from now. However, mass-market supermarkets, hypermarkets and discount stores will be hit later, in six to eight months," he told local media in mid-April, before the antigovernment rallies had escalated even further.



TRA figures suggest that March sales totals would be down by around 2% compared to the same period last year, at the height of the economic downturn.



The political turmoil is also having a detrimental effect on Thailand's crucial tourism trade, which contributes some 6% to GDP. Not only are visitor numbers well down – with some estimates putting the drop in arrivals at around 20% – but tourism spending has also plummeted. With far fewer tourists in the country, retail revenue in areas frequented by foreigners has obviously been impacted, but even those overseas tourists who have made the trip despite the protests appear cautious of venturing out to areas where rallies are being held. In addition, telecoms operators are being hit by the loss of roaming revenue from tourists using their phones in Thailand.



The Bank of Thailand chief economist, Suchart Sakkankosone, warned on April 8 that the political situation was harming consumer and business confidence.



"Confidence should return if the situation gets back to normal," he said. "But it is still too early to tell what impact this will have on the economy because we have to wait until the situation is more stable."



His comments came after a study by the University of the Thai Chamber of Commerce showed consumer confidence had slumped in March, with the index falling to 69.8, well down on the 71.9 for the first month of the year.



Releasing the figures, university economist Thanavat Polvichai said the consumer confidence index would likely fall far further if the standoff in the Rajaprasong retail district continued.



"Clearly the confidence index is likely to fall sharply in April as the political protest drags on," he told a press conference. "The protest has hurt tourism and spending and more damage is expected if it continues."



There is, however, some relief in sight for hard-hit retailers in downtown Bangkok, with the government announcing plans in late April to extend the deadline for payments on taxes and other fees for six months. Those businesses affected by the protests in the Rajaprasong district will have the payment terms on valued-added tax, corporate taxes, property tax and contributions to the Social Security Fund as well as utilities deferred under a decision taken by the cabinet on April 26.



How deep the long-term impact of Thailand's political instability will have on the economy and the retail sector will depend on the length and scale of the protests. Should they further deflect the state and the private sector from the job of restoring growth and ensuring the full benefits of the government's economic stimulus package flow down throughout society, fewer people will feel inclined to spend, weakening the retail sector further.

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