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Economic growth in 2014 will rely on the performance of exports, tourism

CLEARLY the economy this year will grow slower than 3 per cent or maybe 2.5 per cent, as there is only one engine left now - exports - after government spending was put on hold pending formation of a new government.

The tourist business will recover in the second half of this year, but domestic consumption and investment will still be languishing.

Exports could expand 5 per cent this year, thanks to signs of recovery in the global economy, especially in the US and Europe, while in Asia, powerhouses like China and Japan may advance only slightly.

"We hope the country's exports will grow. That will drive the country's economic growth this year although there are some factors that may make the country's exports miss the growth target of 5 per cent. In particular, China's economy appears to grow slower than 7.7 per cent," Charl Kengchon, managing director of Kasikorn Research, said last week.

KResearch will revise down Thailand's economic growth to below 3 per cent after the Constitutional Court voided the February 2 election. That ruling makes it clear that there would be no new government being formed before the second half, which will delay the 2015 fiscal budget. Government spending as a driver of the economy will be weakened.

"We will revise down lower than the Bank of Thailand's forecast of 2.7 per cent to 2.5-2.6 per cent. This is now under study," he said.

After the Constitutional Court ruling, the Bank of Thailand, University of the Thai Chamber of Commerce, National Institute of Development Administration, Fiscal Policy Office and National Economic and Social Development Board have all revised down economic growth this year to less than 3 per cent.

Somchai Sujjapongse, director-general of Fiscal Policy Office, said that because of the political strife, the Finance Ministry has revised down its 2014 GDP forecast from 4.1 per cent to 2.6 per cent. There will definitely be a contraction from last year.

If there is a new government by the third quarter, the economy should be able to pick up in the fourth quarter, but if there is no new government by that time, GDP growth could be revised down again.

The public sector should accelerate this year's budget spending, which is about Bt350 billion, to help stimulate the economy, as the expected spending target has already been lowered by the Finance Ministry from 92 per cent to 90 per cent.

Reflecting the economic situation, the financial results of companies both listed and non-listed on the Stock Exchange of Thailand will barely edge up or may even fall this year. This directly affects investment in the stock market, which seems to be waning. Brokerages have also revised down the SET Index year-end target from 1,400 points to 1,300-1,330.

Prasert Khanobthamchai, executive vice president of Kasikorn Asset Management, said the voiding of the election has further complicated the situation by increasing political risk. However, the economic situation does have a different picture with the stock market since corporate strengthen of buying and selling still remain.

"If the economy can bounce back, it will stimulate the stock market," he said.

He sees the SET at about 1,400 by year-end, but if the political chaos is prolonged into the second half, the downside should be 1,330-1,300 points.

Prapas Tonpibulsak, chief investment officer of Krungsri Asset Management, said the prolonged political mess with no end in sight could lead to a shrinkage in GDP this year. There is a chance that Thai stocks can fall further in the short term and there is a possibility that some corporations' profits will come out negative for the first quarter.

"If the profit figures for listed companies come out bad for the first quarter, it will affect corporate growth this year," he said.

"In the big picture, if listed companies are able to grow by 5 per cent this year, it would already be very good for the current situation of the Thai stock market," he said.

According to a survey by The Nation, real estate is one industry that will grow along with the country's economic growth. It is also showing signs of dropping 2-5 per cent this year.

The auto industry also shows signs of braking. Domestic demand is expected to be 1.2 million units this year, or about 11 per cent under the 1.35 million units level last year. However, the export market will still keep growing this year, the Federation of Thai Industries has reported.

The retail industry is aiming for growth of 6-7 per cent this year, which is nearly the same as last year, based on the country's economy growing 2.5 per cent. First-quarter growth this year will be only 2 per cent, according to the Thai Retailers Association.

"If the country does not have the new government in the third quarter of this year, we may have to revise down the country's economic growth again," the FPO's Somchai said.

That means the country's economy still faces an unpredictable future. Maybe GDP growth will be lower than 2.5 per cent, even though the global economy is recovering, if the duration of the political uncertainty is prolonged.


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