Consumer confidence dropped for the first time in 14 months in July, reflecting concerns about uncertainty in forming a new government and political stability that could affect the economic recovery.
The University of the Thai Chamber of Commerce (UTCC) reported on Friday that the consumer confidence index fell to 55.6, down from 56.7 in June.
“The consumer confidence index remains below 100, indicating consumers still perceive the economy is recovering slowly,” said Thanavath Phonvichai, the UTCC president.
“The high cost of living and rising interest rates have negative psychological effects on domestic purchasing power, tourism, exports, businesses and future employment prospects.”
The inability of political parties to form a new government three months after the May 14 election has caused people to become concerned about political instability. As a result, they have become more cautious with their spending, said Mr Thanavath. This reduces the circulation of money in the economy.
A tepid global trade environment and poor export prospects, likely leading to a contraction of more than 1%, have also affected the supply chain, he said.
In addition, the third quarter is the low season for tourism.
“The caretaker government is barred from fully utilising the state budget to drive the economy,” said Mr Thanavath.
“Along with several other negative factors, money entering the economy is estimated to have dropped by 50-80 billion baht. Consequently, the economic situation during June and July remained stagnant.”
However, he said if a new government can be formed by August or September and it can restore stability, consumer confidence should gradually recover.
In a related development, the TCC Confidence Index, which gauges the sentiment of the business sector and members of the Thai Chamber of Commerce, rose to 55.6 in July from 55.2 in June.
Mr Thanavath said the uptick in the business confidence index was marginal because of uncertainty about the new government. However, the business sector still believes the economy can sustain a continuous recovery, he added.