The Business Confidence Index fell 9 points In the Second Quarter of 2021

29st July 2021, Siam Ratings Agency Company Limited (SRA) announced the result of the survey about WVB Business Confidence Index in the second quarter of 2021.

SRA Co., Ltd. conducts the survey quarterly. The main objects of the survey are companies which have the most well- known brand, the largest number of Total Assets, Total Revenues, and Employees. Being performed from the early of July 2021 to the late of July 2021, the survey attracted 150 Companies which active in many different fields in Thailand, such as Agriculture, Automotive, Construction, Technology, Energy, Electronics, Telecommunications, Services… In particular, large and small enterprises accounted for over 95% of total enterprises participating in this quarter.

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According to the survey, the Business Confidence Index (BCI) in the second quarter of 2021 reached 119 points, decreased by 9 points compared to the first quarter of 2021 (128 points), This index shows that companies in Thailand have a negative perspective on the current economic situation, which most companies also say they are not confident that the Thai economy will improve in the next phase. Besides, there are also many enterprises that believe that the current economy has many fluctuations and it is difficult to predict due to the volatility of the global economy and especially the Covid-19 situation variable in 2021.

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Summary of investigation results of 6 components building Business Confidence Index (BCI) in the second quarter of 2021 as follows:

- On the general economic situation of Thailand today:

Only 18.00% of enterprises participating in the survey said that Thailand's overall economy is now better than 12 months ago, 52.00% of enterprises said that the economic conditions of Thailand remained the same. 30.00% of enterprises said that economic conditions were somewhat worse than 12 months ago.

According to the Kasikorn Research Center (KResearch), The latest wave of COVID-19 may cause the Thai economy to grow at a slower rate in 2Q2021

The Thai economy has yet to fully recover from the previous waves of COVID-19 as reflected by the contraction in 1Q2021 GDP growth for the fifth consecutive quarter at 2.6 percent YoY. The shrinkage was partly due to the decline in private consumption despite a number of the government's economic stimulus measures, namely the 'We Win' and 'We Love Each Other' programs, as households were more careful about their spending while tourism, which employs a large proportion of the workforce, was struggling to bounce back. As a result, the labor market became more fragile, with the number of underemployed workers rising to 4.4 million during 1Q2021 after hitting a record high of 5.4 million in 2Q2020.

The third wave of COVID-19 in Thailand, which emerged in early 2Q2021 (April), has worsened. According to the latest report, the number of daily infections remained at an elevated level (approximately 2,000 cases/day) and there was a substantial increase in the number of deaths. Although the latest wave of COVID-19 is much worse than the previous ones, the government's containment measures are less stringent. So far no lockdown measures have been imposed. However, the government has split the nation into color-coded zones as part of its attempts to contain the spread of the virus. As the government began to scrap part of the lockdown restrictions around mid-May, it is expected that the pandemic will persist longer than that seen in the previous waves during which lockdown restrictions were imposed, and it took roughly a month to contain the virus. Meanwhile, the amount of public relief funds for those affected by the third wave of COVID-19 is lower than those seen during the previous two waves.

- Prediction of Thailand general economic situation in the next 12 months:

74.67% of enterprises believed that Thailand's economy would be better in the next 12 months, 24.00% said that the economy would remain unchanged, and 1.33% of businesses are worried about Thailand's economy in the future.

- Plans to use employees:

In the survey: 6.67% of enterprises expected to raise human resources; 80.00% of enterprises planned to remain and 13.33% of enterprises will reduce the number of employees in the future.

According to KResearch (Kasikorn Research Center) Fragile employment has affected the spending behavior of households

​The third wave of COVID-19, which emerged in early April, has yet been brought under control as the number of daily infections remains at an elevated level. The prolonged pandemic caused the KR-ECI (KR Household Economic Condition Index) to slip to 36.7 in June 2021, from the 37.3 reported for May and 37.2 recorded in January 2021. The 3-month Expected KR-ECI also dropped to 38.9 in June 2021, against the 39.4 recorded in May, suggesting that households were still concerned about the rising cost of living. Additionally, uncertainties surrounding COVID-19 containment measures caused the June KR-ECI components on income and employment to decline from those reported in the preceding month. (The poll was conducted in late June).

Although the survey on employment at various organizations shows that job cuts began to decline in June 2021 as compared to the same period of last year, other factors such as reductions in overtime hours or monthly salaries in lieu of layoffs were more apparent. These are in line with the results of an additional poll conducted by KResearch, which show that most households experienced declining income, which has led them to change their spending behavior.

- Investment plans for fixed assets:

50.00% of surveyed businesses planned to invest more costs for fixed assets, 46.00% of these still have no plan and 4.00% planned to reduce the cost for fixed assets in the next 12 months.

- The belief in revenue growth:

83.33% of participating enterprises were confident of an increase in sales, 16.67% of enterprises said that the revenue would remain and 0.00% business is concerned about the number of sales going down in the next 12 months.

- The belief in profit growth:

83.33% of enterprises believed that profit would rise in the following year, 16.67% of enterprises believed that profit would remain and 0.00% business is concerned about the number of Profit going down in the next 12 months.

According to KResearch (Kasikorn Research Center), Private Consumption will continue to pressure the Thai economic performance during 2Q2021

Despite the low 2020 base, the Thai economy in 2Q2021 may grow slightly on a YoY basis. However, it may decline on a QoQ basis because of the setback from the third wave of COVID-19. The ongoing pandemic has worsened existing economic woes such as the high unemployment rate and sluggish tourism. Although the government has not imposed stringent COVID-19 containment measures, the financial health and confidence of consumers have become more fragile.

KResearch is of the view that private consumption will continue to be pressured by the COVID-19 pandemic despite new relief measures, such as the additional cash hand-out under the 'We Win' and 'We Love Each Other' programs, plus those scheduled for implementation during 2Q2021. Moreover, the government has approved the draft of an executive decree to allow it to borrow an additional Baht 7 billion loan.

However, sagging household income, resulting from cuts in working hours, will continue to dampen household consumption and purchasing power. Additionally, Thailand will likely experience a rising cost of living while income remains low (or stagflation) because headline inflation increased to 3.4 percent in April 2021, driven primarily by rising energy costs in line with the global economic growth. The higher inflation rate will in turn bolster the cost of living, while employment and income will unlikely see high growth. Such factors are bound to pressure household purchasing power, going forward. Meanwhile, tourism has yet to power back to pre-pandemic levels.

Although the government is planning to reopen the country to international tourists during 2Q2021, it is expected that the number of their arrivals will be limited at 0.25 - 1.20 million during 2021. The only driver of the Thai economy is the export sector. The outlook for Thailand's outward trade looks bright, thanks to faster-than-expected economic recoveries in Thailand's key trade partners such as the US and Europe.

Important factors that will likely help revive the overall Thai economy are COVID-19 containment measures, especially accelerating vaccinations. The current inoculation rate in Thailand is relatively low as compared to other Asian countries such as Singapore at 33.6 percent of the population and South Korea at 7.3 percent of the population. As of May 18, 2021, the first-dose vaccination rate in Thailand was 2.3 percent of the population. The variety of COVID-19 vaccines here is also limited, and their effectiveness must be monitored continuously.

Therefore, the Thai economic recovery will rest on COVID-19 containment measures, the inoculation rate and effectiveness of vaccines. The government's economic stimulus and relief measures are set to sustain and help households and businesses. We at KResearchproject that the Thai economy will grow 1.8 percent during 2021. We will continue to monitor the COVID-19 situation in order to assess its impact on the Thai economy in the future.

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