Businesses severely impacted by declining purchase power

The business sector is in turmoil as purchasing power continues to deteriorate. Retail and wholesale businesses, as well as restaurants in provincial areas, are experiencing a 30-40% drop in sales, raising concerns that liquidity issues may spread further.

Business operators are urging the government to support stimulus measures like the “half-half” scheme, the co-payment package introduced following Covid, and the blue flag programme to address the cost of living crisis. They view the digital wallet initiative as ineffective for small businesses due to its complex conditions and slow fund transfers.

Purchasing power remains fragile and continues to decline, particularly among the lower-income groups. Small businesses in both Bangkok and provincial areas are affected by reduced consumer spending, as reflected by shrinking sales, posing a risk to the Thai economy in the second half of the year.

Somchai Pornrattanacharoen, honorary advisor to the Thai Wholesale and Retail Trade Association, says that overall, retail and wholesale business across the country is in a poor state, especially in provincial areas where purchasing power has significantly slowed. Customers have cut their spending on all products by 15-30%, focusing primarily on essentials. This has impacted more than 400,000 small shops nationwide, including over 100 wholesalers and retailers in provincial areas, leading to a chain reaction of business closures due to declining purchasing power, rising costs and intense competition.

The government needs to quickly implement economic stimulus policies targeting specific groups, such as the half-half scheme, which can swiftly boost purchasing power and benefit small businesses the most by spreading money across the country.

“The digital wallet programme is cumbersome with many steps and it will take months before funds reach the businesses. This discourages small shops from participating due to high financial costs and liquidity risks,” Somchai said.

Milin Wirarattanaroj, CEO of Tang Ngee Sun Superstore in Udon Thani, noted that purchasing power in provincial areas has dropped by over 30%, and the liquidity of small retailers and wholesalers has deteriorated. There is concern about ongoing business closures among provincial wholesalers and retailers, with the trend remaining uncertain.

“Provincial retailers are focusing on cost management and liquidity to continue operating. The government needs to urgently introduce economic policies and work with producers to lower product prices for the next 3-6 months to reduce Thai citizens’ expenses and improve liquidity for businesses nationwide,” Milin said.

The government’s much-hyped digital wallet scheme, which is set to launch in December, is seen as having complex conditions and requiring businesses to buy stock in advance, with funds taking 3-6 months to enter the system. This policy forces businesses to inject money into the system from the start, despite their already strained liquidity.

Restaurant businesses in provincial areas are struggling too. According to Thaniwan Kulmongkol, president of the Thai Restaurant Association, the restaurant business in the first half of the year was poor, with May sales dropping by up to 40%, worse than the same period last year. The situation is particularly difficult in provincial areas during the rainy season, a low season for business. Food carts that cannot sell for just one week may have to close down, affecting millions of street food vendors nationwide. In contrast, restaurants in Bangkok and urban areas still benefit from consumers dining out and using them as meeting and socialising venues.

“The restaurant industry is not thriving this year, despite the number of tourists visiting Thailand. Many tourists prefer to eat at economical food courts in shopping malls or restaurants owned by Chinese operators, increasing competition,” Thaniwan said. 

The digital wallet initiative should also consider the tourism and restaurant sectors by allocating 50 billion baht or providing 50% subsidies to consumers, which could significantly boost spending and create a multiplier effect in the economy, benefiting agriculture, food production and employment.

Thienprasit Chaiyapatranun, president of the Thai Hotels Association, noted that the domestic tourism market is also affected by the declining purchasing power of Thai citizens, particularly in provincial areas, due to rising household debt, factory closures and unsold new cars, reflecting the purchasing power issue. The foreign tourism market faces risks from unpredictable factors, such as potential crises like the recent Covid-19 pandemic and ongoing geopolitical issues.

“The government initially aimed to attract 39 million foreign tourists this year, close to the 2019 pre-Covid figure, but this goal seems unlikely. The revised target is 36.7 million, which is still feasible, but achieving this would require attracting 20 million tourists in the second half of the year, given that from January 1 to June 16, there were 16.2 million tourists,” Thienprasit said.

The key challenge is to distribute tourist arrivals throughout the year rather than concentrating them in any one month. The target of generating 3.5 trillion baht in tourism revenue from both domestic and international tourists this year appears unrealistic, given the foreign tourist target of 36.7 million.

The tourism sector is also facing issues such as market disruption by foreign tour companies, which tarnish Thailand’s tourism image. The overall occupancy rate in May was 52%, down from the previous month due to the low season, but slightly up from the same period last year due to an increase in foreign tourists. The Eastern region had the highest average occupancy rate at 65.6%, followed by the Central region at 62.2%, the South at 54.5%, the Northeast at 38.1%, and the North at 25.2%. The June occupancy rate is expected to be around 47%. The second-half outlook remains uncertain as tourists increasingly book hotels at the last minute.

Wichai Wiratkaphan, inspector for the Government Housing Bank and acting director of the Real Estate Information Centre, said that in Q1 2024, there were 213,429 unsold housing units, an increase of 16.4%, valued at 1.217 trillion baht, up 36.5%. Unsold detached houses increased by 12.8%, and unsold condominiums increased by 22.3%, with an estimated 40 months required to sell them all.

Somboon Wasinchutchawal, acting CEO of Frasers Property (Thailand), noted that the real estate sector is feeling the impact of rising interest rates, which is affecting customers as promotional interest rates expire and the MLR (Minimum Loan Rate) increases by 2%, leading to some customers defaulting on payments and properties becoming non-performing assets (NPAs).

Economic factors, including rising interest rates, declining consumer purchasing power and high household debt, are leading to higher mortgage rejection rates from banks. This has prompted companies to adjust their strategies, such as not launching new townhome projects priced between 3-5 million baht and retaining stock for some projects. Similarly, there are no plans to launch new twin-house projects priced between 5-10 million baht this year.