Higher spending bodes well for Thailand’s retail sector: report

Improvement in economic activity has boosted consumer confidence.

A rise in consumer confidence is expected to bode well for retail sales in Thailand in the short term, as households are likely to be more receptive to making discretionary and big-ticket purchases, according to a report from Fitch Solutions.

Last November, the consumer confidence index for Thailand stood at 47.9, the highest it had been since March 2021. This uptick in consumer confidence was attributed to improved economic activity following the lifting of Covid-19 restrictions.

“The steady increase in confidence since May 2022 led to strong double-digit growth in retail sales between May and September 2022 (latest data available), averaging 15.8% y-o-y,” the report stated.

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Consumer spending in Thailand is expected to grow by 4.3% YoY over 2023. This is a slowdown from the 6.8% YoY growth estimated for 2022, when growth was boosted by low base effects from the 11.7% contraction in 2020 and the flat growth of 0.3% in 2021.

“The growth in consumer spending growth over 2023 will come as the economic recovery effects wane, although inflation will also moderate downwards across 2023. This will ensure real income growth for consumers in Thailand, giving them greater propensity to increase their spending,” Fitch said.

Fitch said the forecast is in line with its Country Risk team’s projections that the economy will grow by a real rate of 3.6% over 2023, slightly above the estimated growth of 3.3% in 2022.

International tourism, which plays a large part in the Thai economy, has been continuing to recover from the pandemic-induced downturn, and tourist arrivals to Thailand are expected to surge by 233.3% in 2023, Fitch said.

“The surge in arrivals will bode well for spending in the tourism sector and on related services, such as hotels and restaurants and cultural and recreational activities and establishments,” the report stated.

However, supply-chain issues have continued to persist, having first appeared when global economies started to reopen in 2021, with consumers demanding products that they had little access to over 2020, Fitch said.

This continues to place pressure on manufacturers, with bottlenecks and consumer goods shortages emerging, which has fed through into supply-side inflation, the report noted.

The zero-Covid policy in Mainland China has been blamed for exacerbating the issue, causing disruptions/closures of factory production and manufacturing in the market, with a feedthrough effect on the wider consumer market.

The Russia-Ukraine conflict has also continued to place significant supply pressures on key commodities, especially food supplies, pushing up final market prices across a spectrum of consumer categories, Fitch said.