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Crisis expected to hit GDP

Think tanks lower forecast for 2014 as they see domestic consumption and investment being seriously affected

The prolonged political conflicts, which could possibly lead to the absence of a permanent government in the first half of this year, have prompted think tanks to revise down gross domestic product growth for 2014.

The political vacuum is now feared to have negative impacts on public investment. This would lead to a decrease in domestic consumption and investment while the slow pace of the global economic recovery has also cast doubts on the performance of Thailand's export sector, which is the most promising engine for economic growth this year. The Board of Investment is unable to approve new private investment projects, which is leading to a low level of investment in both the private and public sectors.

Domestic consumption has been going downhill since last year and there is no sign of recovery because of the high level of household debt and the weakening of people's purchasing power, which was brought on by the previous government's populist policies such as the first car and house schemes along with the problem with the rice-pledging scheme and the lower price of crops.

"It now appears Thailand is unlikely to have a new government sworn in by the first half. This could be negative for the economy. Our 2014 GDP growth forecast for Thailand is 3.5 per cent, but that assumes the political crisis will be resolved soon. GDP growth could fall to 2.5 per cent if there is no functioning government this year," Chanpen Sirithanarattanakul, head of research at DBS Vickers Securities (Thailand), said in her weekly column in The Nation.

Tisco Securities' economic team now sees 2014 GDP growth of 3 per cent as the best case scenario. This level used to be its worst-case scenario.

Siam Commercial Bank's Economic Intelligence Unit said last week that without a permanent government in the first half, it may revise down its growth forecast for this year from 3 per cent to 2.4 per cent.

Other economic institutions are now biased towards lower growth. The Bank of Thailand led the pack with the view that the growth rate would be closer to 3 per cent than 4 per cent. The Finance Ministry's Fiscal Policy Office has trimmed its forecast from 3.5-4.5 per cent to 3.1 per cent. Moody's Analytics slashed its forecast from 5.2 per cent to 3.2 per cent. The lowest forecast, at 2 per cent, belongs to the National Institute of Development Administration.

It is not surprising that consumer confidence in January hit a 26-month low. The rising cost of global commodities will also contribute to the rising cost of living and operating costs for business, which added to the problems of softening domestic consumption and dwindling cashflow for SMEs.

At the beginning of the year, most economists believed the export sector would be much better than last year, when it showed meagre growth of 0.31 per cent. However, questions cropped up about whether Thailand has the ability to fully profit from the global economic recovery because of the internal struggle and whether the global economy is even improving at all.

The tourism industry, which normally plays a key role in economic growth, was one of the first to take a hit by the state of emergency declared last month. According to the Tourism Council of Thailand, hotel occupancy in the affected areas of Bangkok dropped below 50 per cent last month while the industry expects to lose about Bt50 billion this quarter alone.

Tisco Securities believes that given benign inflation, the Bank of Thailand is very likely to cut the policy rate at its meeting next month to prop up the economy.

The outlook is bleak but it could worsen if the crisis drags on to the second half of this year.


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