CONSUMERS STILL LACK CONFIDENCE
For those readers who have not read the business stories over the past week, let me recap some of the interesting issues that were written about by our intrepid business writers. Stories such as the Revenue Department coming out to openly state that their tax collection for the first 10 months of the fiscal year (October 2016 to July 2017) was 4% below the target came as a shock to many. The reason given for the shortfall was the lower collection of value added tax (VAT) that you and I pay for consuming.
Of the shortfall of 60.3 billion baht, 41.2 billion baht came from the drop in VAT collection. The 1.4 trillion baht collected in the first 10 months was still 25.7 billion baht higher than in the same period of last year.
The government hopes to collect as much as 1.87 trillion baht for the fiscal year ending on Sept 30, but lower oil prices made it lower its target to 1.8 trillion baht. That too looks difficult to achieve. Despite this lower than expected collection, the Revenue Department hopes to collect as much as 1.93 trillion baht in fiscal year 2018 (October 2017 to September 2018), a rise of 7% from the current fiscal year.
More bad news was reported by the Bank of Thailand in its monthly economic data. The central bank said farm income registered its first contraction in July. That will continue to weigh on private consumption for the rest of the year.
The data indicated that nominal farm income dropped by 2.6% in July, down from 8.1% growth in June. The drop was attributed to falling prices of agricultural goods such as fruit, rice and palm oil.
Farm income is not expected to see any light at the end of the tunnel in the next few months as this year’s harvests have been better than those last year thanks to abundant rainfall following last year’s drought.
This slowdown in farm income is likely to have an impact on already slowing private consumption, which grew by only 2.3% in July compared with 3.4% in June.
To make matters worse, high household debt has kept consumption subdued and any rebound is unlikely to be seen until next year. Household debt in Thailand is 80%, much higher than the 40-60% range reported in Taiwan, Indonesia and Singapore.
The drop in private consumption has also taken a toll on the private sector, with fast-moving consumer goods (FMCG) companies such as Nestle, P&G and Unilever all complaining about how basic necessities such as shampoo, soap, detergent and water are all seeing a sales slowdown.
Many of these companies are saying that this kind of slowdown is surprising because never has such a phenomenon happened in decades, and they are not the only ones to state that. A research house came out to say that FMCG sales had seen mere 1% growth during the first half of this year, the slowest pace of growth in this sector in a decade.
The silver lining to all this bad news has been the fact that the rise in exports and continued robust growth in tourism have helped keep the economic growth story going. There were 3.1 million tourist arrivals in July, up 4.8% from the same period last year, according to the central bank’s data.
To help economic growth, private investment also saw a slight uptick from a contraction in the previous month. And to top all this off has been the fact that the government’s own enterprises have been investing heavily to shore up the economy.
State enterprise investment soared by 20.5% year on year during the three months to June. The State Enterprise Policy Office said that investment for the first seven months of 2017 grew by 30% year on year thanks to accelerated investment in existing and new projects, including the Mass Rapid Transit Authority’s Green Line electric rail project spanning Mo Chit, Saphan Mai and Ku Kot.
All this coupled with the money that the Prayut Chan-o-cha government has been giving to farmers should help improve the economy in the months to come. The government last week also announced 73 billion baht of handouts to farmers to stabilise prices for rice that have been on a downward trend in the past few months. Out of the 73 billion baht, about 52 billion will be handouts to farmers and 21 billion will be for loans to 3.7 million households.
Although the military government has venomously opposed the populist policies of the government it toppled just over three years ago, the fact that it has doled out 73 billion baht after dishing out 76 billion last year shows that it too has stooped to using similar tactics to keep the economy going.