A gradual recovery of the Thai economy should spur greater activity in the country’s retail sector, though it will take time for the market to regain momentum, with consumer sentiment still cool and the sector exposed to domestic and international headwinds.
Retail sales are expected to receive a boost as a result of a modest acceleration in the broader economy, in part supported by state spending on infrastructure and investment projects.
The Bank of Thailand (BoT) has revised its forecast for GDP expansion, raising its full-year outlook from 3.1% to 3.2% in late October, based on year-on-year (y-o-y) growth of 3.3% in the first quarter and 3.5% in the second. However, it has warned that third quarter growth, which has yet to be assessed, may dip below this level.
Private consumption has been on the rise, though it remains subject to fluctuations brought on by internal and external shocks, data from the BoT issued at the end of September showed.
The bank’s private consumption index was up 3.2% y-o-y as of the end of September, though it had dipped 0.2% from August due to concerns sparked by a wave of bombings in September.
These concerns saw a fall in arrival numbers in the tourism sector, one of the driving forces for retail sales, with inbound traffic down 3.1% in September over the previous month to 2.87m, albeit up 9.9% y-o-y.
Flat inflation levels are also supporting household consumption, with headline inflation at 0.02% for the first nine months of 2016, while core inflation, which excludes food and energy prices, was at 0.74%, according to the Ministry of Commerce.
Though the mourning period for King Bhumibol Adulyadej, who passed away in October at the age of 88, could have a dampening effect on spending.
“The king’s passing may have a short-term impact on certain businesses, such as tourism and entertainment, but it has not affected the country’s economic fundamentals,” Mathee Supapongse, deputy governor of the BoT, told international media.
However, prior to the passing of the king caution appeared to be receding, with consumer sentiment improving steadily throughout the third quarter, according to a survey conducted by the University of the Thai Chamber of Commerce (UTCC).
The UTCC consumer confidence index rose for the third straight month in September, reaching 74.2 points.
Among the reasons cited for the improvement in sentiment were the continued low interest rates – the BoT has maintained its benchmark at 1.5% since late April – and forecasts of stronger economic growth heading into the fourth quarter.
While showing a steady improvement, Thailand’s consumer confidence index is still short of reflecting an optimistic outlook, with 100 points being the tipping point into positive ground.
However, there is hope that continued government spending will feed into stronger economic growth. According to Thanavath Phonvichai, vice-president for research at the UTCC, consumer consumption is likely to increase in the fourth quarter as negative factors impacting the economy subside.
From a real estate perspective, demand for retail space remains strong, with vacancy rates in central Bangkok running at less than 3% at the end of June, according to a report by real estate services firm Cushman & Wakefield.
An additional 6.98m sq feet of leasable retail space was added to the downtown district, a 6.6% rise from the beginning of 2016, outpacing the overall rate of new floor space being added in the capital, which was up 2.4% over the period at 60.43m sq feet.
With high occupancy rates, there is demand for additional floor space in Bangkok, though space restrictions and pricing may see more decentralisation of retailing area.
As the Thai retail sector evolves away from traditional stores to more modern outlets and malls, demand for new retail space across the broader country will gain further momentum, according to a report by market research firm Technavio.
Over the next few years there will be a faster rollout of malls, supermarkets and hypermarkets, both in major population centres and in non-urban areas, as shopping patterns change and demand for a wider range of products rises, the report said.
This shift will open doors for new entrants into the retail market, as well as fuel construction and development of new retail space throughout Thailand.
Oxford Business Group is now on Instagram. Follow us here for news and stunning imagery from the more than 30 markets we cover.
Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.
Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.
Register Here×Thailand's economy may be poised for a bounce back after it was hit by the global financial crisis, with the country's capital markets showing signs of leading the way back to growth.
To what extent has the Covid-19 pandemic changed the business environment, and how is Oman helping companies adapt to new realities?
The Turkish Prime Minister Bulent Ecevit has spent the last week in the US hoping to garner support for economic reforms at home and trade concessions for Turkish exports to the US.
