Call for accelerated public spending, action on prices

Meanwhile, FTI chairman Supant Mongkolsuthree yesterday said the decline in the Thai Industries Sentiment Index (TISI) in January was caused by a number of factors: a lack of tangible new government investment; lower purchasing power of farmers; high household debt at 84.7 per cent to gross domestic product; an unsupportive interest rate; reduced demand from major trading partners; and a strong baht when compared to neighbouring countries’ currencies.

The overall TISI, which has a sample size of 1,161 industrial operators, dropped from 92.7 points in December to 91.1 points last month, with 100 being the base point. Industrial confidence in the next three months also fell, from 101.7 points to 100.4 points in the same period.

The confidence of operators that rely on more than 50 per cent of their business coming from domestic sales declined from 92.5 points in December to 88.6 in January, reflecting lower domestic demand. Meanwhile, the confidence of those dependent on more than 50 per cent of their business coming from exports increased from 93.7 to 105.2. This sharp rise in confidence, which is now in positive territory, was mainly from industries which export mechanical equipment, metal-working machinery, air-conditioning, cooling units, rubber products, and automobiles. Auto-sector exports rose last month from the same period last year.

The overall drop in the TISI was the first following three consecutive months of increases, while industrial confidence in the next three months also fell last month.

"The government push in terms of agricultural prices is still unclear and we are still waiting for supportive policies, as crop prices have always been one of the main factors in domestic demand. Lower agricultural prices coupled with rising household debt, from populist policies in the past, have led to reduced purchasing power among farmers, while interest rates are still at the same level. The government therefore has to urgently fix these problems in order to boost domestic demand," said Supant.

The FTI earlier urged the Bank of Thailand to lower the policy interest rate by 50 basis points in order to mitigate the strength of the baht – which has hampered export competitiveness – while helping lower business costs for small and medium-sized enterprises at the same time.

The policy rate now stands at 2 per cent.

"The government’s budget-disbursement performance, at around 30 per cent in first fiscal quarter [October-December], is way below target, while there is no tangible development regarding new government small to medium-size investments. The FTI understands that the government has given priority to these aspects, but we still want the government to make good on these investment promises at soon as possible," said the federation chairman.

"It would be good for confidence if the government could meet its target of around an 80-per-cent disbursement rate for its investment budget in 2015, but I am wary about how much they can do. Many old projects have been put on hold or terminated from the change in government, but there are clearly no new investments at the moment – and that’s the problem," he added.

Meanwhile, the FTI expects crude-oil prices to be around US$50-$60 (Bt1,628-Bt1,954) per barrel during the first half of the year, before increasing to $60-$70 in the latter half due to an expected reduction in oil supply from the US and Russia.

The federation believes falling oil prices could increase Thailand’s gross domestic product by 1.6 per cent from 2015 to 2017, while headline inflation could fall by 1.7-3.4 per cent during the same period.

Headline inflation in January was minus 0.41 per cent.