Business sentiment hit by the rising cost of production

       Business sentiment worsened in July as a result of an escalating cost of production, according to a Bank of Thailand survey. The Business Sentiment Index (BSI) in July was only at 45, compared to 46.3 in the previous month. The confidence index in easing production costs declined from 41 to 38.4 in July.
       "The increasing cost of production is an important issue, especially when we are looking for private investment. It is the risk that erodes business confidence," said Amara Sriphayak, a senior BOT director.
       Amara believed that producers would not pass on rising costs to customers while the economy is still only picking up slowly. Although they have thin margins they cannot mark up prices as they would like.
       Economic uncertainty remained in the first rank of all business obstacles. Political instability is of further concern for the real sector, rising to third place from fourth.
       Although business confidence is below the confidence level of 50 in July, sentiment has gradually improved. This is indicated by forecasts for the index over the next three months, which has increased from 50.4 to 51.3, from all commercial elements except production costs.
       Amara is optimistic that the improving economic conditions, the government's stimulus package as well as the global economic recovery would help bolster confidence here.
       According to the BOT, the Manufacturing Production Index (MPI) continued to improve in July, regarding domestic and export markets.
       Capacity utilisation picked up in accordance with higher production to 61.6 per cent in July. It rose slightly from 60.2 per cent in June, but remained lower than the normal level of 6870 per cent.
       The Private Consumption Index showed an impressive outlook in July in terms of both level and growth.
       It expanded 3.4 per cent from previous month, compared with 2.6 per cent in June. It contracted 1.8 per cent from the same period of last year compared to a 2.7percent drop in June.
       The government's budget disbursement was 75.2 per cent in contrast to 76.4 per cent last year. However, the amount of money was bigger.