Declining rubber prices will likely take a toll on the southern economy, with sales of vehicles and housing projects expected to be tepid for a long time, say traders.
Pithan Panich Co, a leading dealer, said sales of Honda motorcycles in the five southernmost provinces _ Satun, Songkhla, Yala, Pattani and Narathiwat _ have dropped in line with rubber prices since last year.
"Sales volume contracted by 20% to reflect weak purchasing power," said assistant manager Pithan Khophantawee.
The rising cost of living and lower purchasing power pressured by the first-time car buyer scheme have prompted consumers to be careful with their spending.
"Consumption in the region is being hit hard by a few factors including the unrest in the three southernmost provinces
[Yala, Pattani and Narathiwat] that has inevitably hurt tourism. But declining rubber prices have dealt the biggest blow," said Mr Pithan.
Rubber planting and related businesses are major occupations of southerners alongside the fisheries and oil palm sectors.
"Most rubber planters are small and sell latex for 60 baht a kilogramme, only half what they earned two years ago," Mr Pithan said.
The Bank of Thailand's southern branch reports the average price of unsmoked rubber sheet in the first half of this year was 80 baht per kg compared with about 100 baht on average last year and 132 baht in 2011. Prices peaked at 174.44 baht in February 2011.
Central bank statistics also show sales volumes in the South in 2011 were 344,534 motorcycles and 96,735 passenger cars and pickup trucks, up from 292,647 and 71,839, respectively, in 2010.
Sales of motorcycles dropped to 170,196 last year, while the first-time car buyer scheme strongly pushed up sales of pickup trucks and passenger cars to 130,883.
The Federation of Thai Industries' automotive industry club agreed that declining farm prices of rubber and rice are the main negative factor affecting domestic vehicle sales apart from the end of the first-time car buyer scheme.
Club chairman Suparat Sirisuwannangkura said Thailand's overall vehicle sales have decreased gradually from 109,673 in April to 98,251 in July. Motorcycle sales fell by 5.81% year-on-year to 176,862.
Mr Suparat said people had lost purchasing power as economic growth lost momentum, but the club projects demand will increase in the fourth quarter, the high season for vehicle sales.
The central bank's Hat Yai branch has met 79 leading business operators in industries such as rubber, canned seafood, oil palm, tourism and property development.
Exporters of rubber products complain their revenue has fallen, as buyers, particularly from China, have reduced purchases due to ample inventory.
Most businessmen expect the southern economy to continue to slow in the second half. Major threats are the lack of raw materials in the fisheries sector, especially shrimp that has been hit by early mortality syndrome, and lower property investment.