The strength of the baht has dumped consumer confidence in Thailand to its lowest level in three months.

The outlook has also been dragged down by persistent worries over the consequences of the recent flooding and the unclear direction of economic policy, says the University of the Thai Chamber of Commerce (UTCC).

The Consumer Confidence Index dropped to 83.1 points last month, from 83.5 in October and based on a survey of 2,231 respondents. The figure has now been below 100 points for 29 consecutive months, showing weak consumer confidence.

Other indexes reflecting consumer confidence also fell last month to their lowest points in three months.

Confidence in the overall economy decreased slightly, from 77.7 points in October to 77.2 points last month. Confidence in future income fell from 94.4 in September to 94.2 points last month, while the index on future employment opportunities dropped from 78.4 in October to 78.1 last month.

Thanawat Polvichai, director of the UTCC Business and Economic Forecast Centre, said declining consumer confidence would have a lingering effect on the economy until next year's second quarter.

"The baht's appreciation has increased consumers' concern," he said. "The government must find measures to boost consumer confidence and the country's economic growth."

Although exports are expected to be the key engine driving Thailand's economic growth, the government can no longer rely on this, because of the baht's strength. There's a chance the baht will appreciate further, to 34 to the US dollar, while it should be 36 or weaker in order to reach the government's official export target of 12.5 per cent growth to US$145 billion (Bt5.11 trillion). For every 1 per cent appreciation of the baht, exports will drop by 0.15-0.2 per cent, he said.

Thanawat suggested that in order to encourage economic growth of 4-5 per cent next year, the government should accelerate both budget disbursement and investment in mega-projects.

However, he disagreed with a private-sector suggestion that interest rates be reduced to ease the baht problem, saying foreigners would misunderstand the move as symptomatic of problems in the Thai economy.

He said the government should closely monitor the inflow of foreign capital in case of "unusual situations". The Bank of Thailand should allow the currency to flow in accordance with market mechanisms but should intervene at an appropriate level in the event of a significant appreciation.

Petchanet Pratruangkrai

The Nation