Decision made before Feb 2 election nullified by charter court
The Bank of Thailand yesterday once again cut its growth forecast for gross domestic product to 2.7 per cent, down from the 4.8 per cent it predicted last October and 5 per cent earlier.
Its said the main reasons for its latest revision were the lower number of tourists and a slump in domestic consumption and investment due to political uncertainty. However, the decision to lower the forecast was made before the Constitutional Court nullified the February 2 election.
The central bank’s Monetary Policy Committee (MPC) said exports would be the main driving force for the economy this year thanks to a global recovery, and expected this sector to grow by 4.5 per cent.
It also projected that domestic consumption would grow by 0.3 per cent, government spending by 2.5 per cent and imports by 1.1 per cent, while private investment would shrink by 0.5 per cent.
Softened domestic demand and the prolonged political crisis have also led other major think-tanks to revise lower their predictions for the Kingdom’s economic growth.
The National Institute of Development Administration (Nida) said in December that GDP should be able to grow by 4-5 per cent, but this month revised that number down to 2.6 per cent.
The University of the Thai Chamber of Commerce (UTCC) said this month that it expected GDP to grow by only 2.5 per cent this year, compared with its December projection of 4.5 per cent.
If the UTCC prediction of 2.5 per cent turns out to be correct, it would mark the lowest growth since the serious flooding in 2011. It said it was basing its downward revision largely on the current political turmoil, which it claimed had already cost the country about Bt430 billion in lost revenue.
Despite the lower growth forecasts, both the BOT and Nida remain positive that things should be able to pick up by the second half of the year through an increase of domestic consumption and tourists thanks to the lifting of the emergency decree in Greater Bangkok and the hope that a permanent government will be installed by the third quarter.
However, hope for economic recovery in the second half may have already been tarnished by the Constitutional Court’s decision to nullify the February 2 election on the same day that the central bank announced its latest GDP growth prediction. The court decision is likely to cause tension among government supporters and might further complicate the already fragile political situation, which could lead to more uncertainty.
“The nullification of the election was not counted as one of the factors in this forecast,” said Paiboon Kittisrikangwan, assistant governor of the Bank of Thailand and secretary of the MPC. He added that given this new turn of events, the committee’s next revision of its growth forecast was more likely to be downwards than upwards.
Speaking to the Japanese Chamber of Commerce on Thursday, BOT Governor Prasarn Trairatvorakul said the MPC’s mandate was to safeguard macroeconomic and financial stability, but stimulating the economy through financial policy such as lowering the policy interest rate would be much harder because of high household debt and volatile capital flows, which fluctuate with the global financial market.
“The already low policy rate means that the case for further easing is not without its caveats,” he said.