BOT chief worries about impact higher wages will have on small businesses

Prasarn sees 5.8% growth this year but says many small firms may close

The Bank of Thailand governor expects the Thai economy to expand 5.8 per cent this year and estimates 4.7 per cent growth next year on domestic demand and export recovery, while expressing his concern about the increase in minimum daily wage which might force many small and medium-sized enterprises to shut down.

Speaking at a Dinner Talk 2012 on "Challenges: Thai Economy, Global Economy" recently, BOT chief Prasarn Trairatvorakul said the Thai economy could grow slightly higher than expected at 5.8 per cent this year, and 4.7 per cent in 2013. The BOT had earlier estimated 2012 growth at 5.7 per cent and 2013 growth at 4.6 per cent.

Domestic demand, including private consumption and investment, has been cited as the main driver of growth while exports are expected to stage a recovery in early 2013.

The central bank expects Thai exports to expand in the latter half of next year.

Next year's risk to growth is the minimum wage increase across the nation early next year and this could prompt a 22-per-cent increase in some operators' costs. In some cases, the first round of the wage increase caused a 40-per-cent rise in their costs.

The BOT expects some operators to be unable to cope with the wage rise and they would likely shut down their operations.

Prasarn expressed most concern about capital movement after additional money injection by the US Federal Reserve into the financial system. Other external risks for 2013 include the European debt problems and US "fiscal cliff".

Montree Sornpaisarn, chief executive officer at Maybank Kim Eng Securities (Thailand), said that next year could see the Stock Exchange of Thailand continue its rise with the SET Index targeted to hit 1,400-1,450 points.

Thongma Vijitpongpun, president and chief executive officer at Pruksa Real Estate, said the Thai property market was expected to grow for the next two to three years due to the government's electric train expansion project. Next year's market growth is estimated at 7 per cent, to Bt320 billion.

SCG chief executive and president Kan Trakulhoon said that the Thai economy was expected to grow 5 per cent in 2013. However, Thai exports were vulnerable to impacts from the global economic situation, particularly in Europe. In 2013, the risk to Thai economic growth lies in the political situation.

The construction materials industry, particularly cement, could see more improvement from this year's third to fourth quarter to the middle of next year due to higher demand from infrastructure projects.

Pailin Chuchottaworn, president and chief executive officer of PTT, said that oil prices could be pressured by political situations, particularly conflicts between Iran and Israel. Next year the crude price is expected to be US$100-$110 per barrel.

Payungsak Chartsutipol, chairman of the Federation of Thai Industries, said that next year could see brighter prospects for industries due to the recovery of flood-hit industries and demand for Asean countries' products that could affect future investment.

The Thai economy is expected to expand at a rate higher than 5 per cent, he said.

Japanese investors are expected to make more investment in Thailand as Japanese SMEs need to invest outside Japan.

The industrial sector will likely face labour shortage and higher production costs as a result of the wage increase next year, Payungsak said.

Thai industries are also expected to see the impact from energy prices and higher prices of raw materials, he said.

With these factors, industrial restructuring is needed to move labour-intensive industries to neighbouring countries, he said, adding that transborder industrial estates also need to be established for investment and the Asean Economic Community.

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Article source: http://www.thethailandlinks.com/2012/12/15/bot-chief-worries-about-impact-higher-wages-will-have-on-small-businesses/