Thailand reaches record consumer confidence in May

BANGKOK: Thai consumer confidence rose in May for the first time in four months, helped by surprisingly strong GDP data released during the month and record numbers of tourists, a university survey revealed Thursday.

The confidence index of the University of the Thai Chamber of Commerce rose to 71.1 in May from 70.5 in April. The high cost of living and political uncertainty had been blamed for the recent drop in confidence.

Data on May 23 showed the economy grew 3.0 percent in the first quarter from the same period last year while economists had expected a 2.5 percent growth. The state agency that releases the data highlighted a record high level of tourists during the quarter, 5.3 million, up 15 percent from a year before.

The university also pointed to high commodity prices in the country where 24 million people out of a population of 67 million depend on farming for a living and said consumers on the whole were optimistic about an upcoming general election.

"The dissolution of parliament and the setting of the date, July 3, for the election had a psychological effect, raising hopes that the new government will pursue policies to boost the economy," the university said in a statement.

Some hope the election will draw a line under five years of political turbulence, and campaigning so far has been peaceful, but the potential for unrest is high, especially if rival parties jostle to form a coalition government after the vote.

The university was guarded about the outlook for confidence.

"Although the May index showed an improvement, the average figure of the first two months of the second quarter (70.8) against the first quarter average (71.93) was pointing to a risk of weakness," it said.

Political uncertainty has caused Thai stocks and the baht to fall this week.

"It was good that we had consumer confidence picking up in May, but the question remains: will it be sustained? And we think there are risks," said Nuchjarin Panarode, an economist at Capital Nomura Securities.

"We are concerned by external risks, with weak economic data from the United States and Europe, which will have an impact on exports. There's also political risk at home as uncertainty grows about the government formation after the poll."

However, Nuchjarin, like other economists, still expects the central bank to raise its policy rate by 25 basis points to 3.25 percent at its next meeting on July 13.

It raised the rate by 25 basis points to 3.0 percent on June 1, the seventh increase since July last year to curb inflationary pressure.

Despite government price controls on certain goods and subsidies on diesel and some utilities plus public transport, inflation is still on the rise.

Annual inflation edged up to 4.19 percent in May from 4.04 percent in April, while the core rate hit 2.48 percent, near the top of the central bank's target range of 0.5-3.0 percent, which guides monetary policy.

Bank of Thailand Governor Prasarn Trairatvorakul said this week that the economic policies of some political parties, if implemented, could push inflation above the target range.

Both leading parties are promising big increases in the minimum wage and other populist measures.

Copyright Reuters, 2011