Executive confidence in economy hits two-year low

Executive confidence last quarter reached a two-year record low, according to Grant Thornton.

Ian Pascoe, an executive with the British consulting firm, said confidence in the third quarter that the Thai economy would improve over the next 12 months dropped by 28 per cent from the previous quarter. That is the biggest drop since the flood disaster in 2011. 

This conclusion was part of the International Business Report, a quarterly attitude survey of more than 3,000 executives from 45 countries across the world.

About 80 per cent of the executives surveyed in Thailand were concerned over economic instability and the assessment of business growth. About 31 per cent expect their corporate income to rise in one year. 

“Based on sluggish exports, only 2 per cent of the executives surveyed anticipated rises in profit for the next 12 months. This is the same level as surveyed in the second quarter of this year and dropped sharply from 17 per cent for the third quarter of last year,” the survey noted.

About 4 per cent plan to increase investment for the construction of plants and purchase of machinery, compared with 18 per cent in the previous quarter. Exports were expected to expand 2 per cent this year.

Grant Thornton forecasts gross domestic product expanding 3.7 per cent this year along with export growth of 1 per cent. Next year is expected to see economic growth at 4.8 per cent or less with export growth of 7 per cent.

The current account is expected to run a deficit next year of US$7 billion (Bt223 billion) with an estimated unemployment rate of 0.8 per cent. 

Pascoe expects the economy to show improvement next year, given likely economic improvement for major trading partners, likely growth in tourism and reduction of populist government policies.

“We will likely see higher economic confidence, while the state should support supply through the reduction of the corporate income tax and mega infrastructure investment,” he said.

The economy has reached a turning point this year with the slowdown of exports, which are estimated to expand by 1 per cent, and increases in minimum daily wages. The unemployment rate is low, but there remains a shortage of skilled labour and people turn to consume more high-tech products with consistent trade barriers in some service industries. 

The rice-pledging scheme, which has caused a negative image for the country, and low manufacturing capability have become burdens that take the edge off the nation’s competitiveness, the consultancy claims. 

Grant Thornton expects Thailand to lose more than Bt300 billion from its rice-pledging programme.

“Now, the loss figure is said to be Bt450 billion, which may be higher. We expect a loss figure of over $10 billion, or over Bt300 billion,” he said.

The urging by the International Monetary Fund and the World Bank for the government to abolish the pledging scheme might be based on foreign commodity markets. The programme, like others the government subsidises, has prompted high concerns over big losses. 

“We think that Thailand has confronted the problem for subsidising the rice-pledging scheme, and this involves spending for those not being able to produce rice with efficiency. Spending in a project has to increase efficiency,” he said.

Although there are suggestions for the government to reallocate money for the scheme to help the poor directly, Grant Thornton thinks it should spend it to develop manufacturing productivity.

“Although money would be paid for the poor to create consumer spending, it should be financing the enhancement of efficiency and productivity for the nation’s productivity improvement and growth for the next years,” he said. 

Any situations that prompt instability, including politics, could affect business, and now the general climate remains on a downward trend as people are talking about the Constitutional Court’s recent verdict against certain proposed charter amendments. The situation in recent days has not had a positive impact on foreign investment in Thailand. 

Politics has become a major risk as Asean countries compete for foreign direct investment. Foreigners may look to other countries like Myanmar for their investment.

From 2005 to 2006, FDI moved out of Vietnam rapidly because of that nation’s utility problems, state issues and financial-industry difficulties.