News / Economy

Thais Brace for Recession as Crisis Nears Crunch Time

FILE - A Thai vendor weighs a bag of rice at a market in central Bangkok.
FILE - A Thai vendor weighs a bag of rice at a market in central Bangkok.
Reuters
— The golden Buddha statues, amulets and lucky charms that festoon Sakuntala Mettawong's tiny Bangkok cellphone shop are not helping business.
 
It's peak time, but customers are scarce at the usually bustling mobile phone bazaar in the MBK Center, which sits on the fringe of a mile-long cluster of gleaming malls that symbolize the rapid growth of Thailand's consumer class.
 
“Business has been very bad. Many shops have left here, some moved to find cheaper spots or changed hands,” said Sakuntala, almost drowned out by the noise of bored shop owners playing computer games behind her.
 
“The top phone models are more difficult to sell... more people are selling their phones back to shops, to use simple ones, or sell because they need money,” said Sakuntala.
 
An economy known for its dynamism is ailing, headed towards recession and held hostage by another crippling bout of turmoil in an eight-year power struggle being fought in Bangkok's commercial heart and in its politicized courts.
 
The intractable crisis centers on the political dominance of the billionaire Shinawatra family, and the slim prospect of a resolution has been sapping consumer confidence, which sank in February to a 12.5-year low.
 
Economists say five months of sporadic violence and anti-government blockades that have scared off tourists could cost 300 billion baht ($9.3 billion) in lost revenue.
 
Some businesses fear the Teflon coating on what's for years been one of Asia's most resilient economies could finally be wearing off.
 
“Consumers have no mood to spend. We've seen demand falling in every segment of our products,” said Boonkiat Chokwatana, chairman of consumer product distributor I.C.C. International Pcl, which saw first-quarter sales fall 20 percent.
 
“In more than 43 years in business, we've never needed to cut our costs, even during the 1997 financial crisis. This year the situation is quite critical,” said Boonkiat.
 
With legal cases stacking up against Prime Minister Yingluck Shinawatra, the confrontation pitting royalists, tycoons and scions tied with the old and new political orders against each other could get much worse.
 
Yingluck's mostly rural, working class supporters are convinced powerful forces in Thailand's establishment are  conspiring to overthrow her, most likely via a court ruling, and they have vowed to fight back.
 
The outlook for the economy looks just as grim, with some economists forecasting growth of less than 2 percent or even contraction if growth of exports, worth 60 percent of gross domestic product, falls short of the 4.5 percent forecast by the central bank.
 
The International Monetary Fund (IMF) last week projected growth of 2.5 percent this year, the slowest among Asian economies and less than the 2.7 percent seen by the Bank of Thailand following two revisions since October, when tension resurfaced.
 
Thailand's credit-hungry consumers are paying the price, with household debt at the end of 2013 hitting a record at 82.3 percent of GDP, compared with 77.3 percent a year earlier and 45 percent a decade ago.
 
“We're not aggressive on loan growth this year,” said Siam Commercial Bank president Kannikar Chalitaporn. “We'll offer [clients] any assistance to prevent loans from turning into bad debt.”
 
The Thai Industries Sentiment Index in February hit its lowest since July 2009, interest in buying property is at its lowest in almost nine years, while domestic auto sales dropped nearly 45 percent in February from a year earlier, after a similar drop in January.
 
Recession looming?
 
The central bank has cut the benchmark interest rate by 25 basis points to 2.0 percent, the lowest since December 2010, and expects the economy to shrink in the first quarter. If that trend continues for another quarter, Thailand would be in recession for the first time since early 2009.
 
“There's a huge risk of technical recession in Thailand,” said Gundy Cahyadi, an economist at DBS Bank in Singapore. “Export growth remains the only support right now, but this alone can't hold up the economy for too long.”
 
Central bank chief Prasarn Trairatvorakul last week said a big rate cut wouldn't help the economy plagued by both a lack of confidence and a policy vacuum.
 
Parliament remains empty after a Feb. 2 election was disrupted, leaving Yingluck heading a caretaker government.
 
The Constitutional Court has not helped. It has ruled consistently against Yingluck's party, annulled an election it probably won and declared illegal a 2 trillion baht ($62 billion) infrastructure spending plan.
 
The Board of Investment said projects worth about 660 billion baht have been on ice, awaiting approval by a new committee the caretaker government has been unable to appoint.
 
The government is at its weakest and any administration that replaces it is almost certain to face the same kind of opposition, meaning many more months of weak business for retailers, the tourism sector and exporters.
 
Hotel occupancy has been hovering at about 50 percent, down from the usual 80 percent, and exports grew just 0.2 percent in the first two months compared with a year earlier.
 
TISCO Bank Pcl cut its forecast for domestic car sales this year to about 900,000 vehicles from 1.1 million-1.2 million, even with a host of zero-interest loans offered by car dealers.
 
Some Thai companies are looking to expand abroad. Handset distributor Jay Mart Pcl said it may revise its target of 35 percent growth this year and aimed to tap high demand in neighboring Myanmar, as Thailand's appetite for top-end smartphones sags.
 
According to market research group Gfk, consumers have been choosing cheaper models from Nokia and iMobile since the protests began, with Apple's sales down from 127,000 units in November to 100,600 in February.

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