THE UNITED STATES' withdrawal of quantitative easing will deal another blow to the Thai economy, as capital inflows may cease and reduce its potential for economic growth this year, warns the United Nations Economic and Social Commission for Asia and the
In its annual flagship publication “Economic and Social Survey of Asia and the Pacific”, Escap estimates that further financial-market volatility from the expected continued normalisation of monetary policy in the US could cut annual growth by 0.7-0.9 per cent in Thailand, India, Indonesia, Malaysia, Russia and Turkey.
The US Federal Reserve has this year cut its monthly bond purchases. Reaffirming its plan towards normalisation, last week it decided to cut them further, from US$35 billion to $25 billion. As of yesterday, foreign investors were net-sellers of Thai shares for a total of Bt26.47 billion so far this year.
Escap expects Thailand’s gross domestic product to grow by only 2 per cent this year, mainly on poor performance in the first half. Political uncertainty led to low disbursement of the fiscal 2013 state budget. The fiscal deficit thus narrowed to 1.8 per cent of GDP, from 2.6 per cent in 2012.
Large-scale infrastructure programmes, which had been expected to drive growth, were either delayed by legal challenges or ruled unconstitutional. Large investments by state-owned enterprises were also on hold, while the delayed approval of investment privileges held back private-sector investments.
Rebound in H2
A rebound is expected in the second half, supported by higher exports from an improved external environment and accelerated public spending.
In its report, Escap also foresees slower growth in Southeast Asia, at 4.6 per cent this year from 4.9 per cent last year. Throughout the Asia-Pacific region, developing countries are forecast to grow at an average of 5.8 per cent in 2014, up from 5.6 per cent last year. Leading them is Myanmar, with projected growth of 7.8 per cent.
“The constrained domestic growth prospects of the region have underlined the importance of productive counter-cyclical public spending to support inclusive growth and sustainable development,” Escap executive secretary Shamshad Akhtar said.
She stressed the urgency for bridging gaps in infrastructure and development in the region and addressing environmental degradation to promote higher, well-balanced and sustainable growth. Another priority for ensuring the sustainability of growth is to address climate change better through improved climate finance.
Escap estimated that the region would need between $800 billion and $900 billion (Bt26 trillion to Bt29 trillion) annually for infrastructure development. However, these countries are witnessing trade-restrictive measures in advanced economies, which deprived them of $255 billion in goods-export opportunities between 2009 and 2013. They also carried high public debt levels.
In this scenario, tax revenue must be strengthened.
Tax gap, the amount of tax governments fail to earn because of evasion and fraud, is estimated to be as high as 12.5 per cent of GDP in some countries. Escap said that closing existing tax gaps in 16 Asia-Pacific developing economies would increase total revenue by more than $300 billion, boosting tax revenues by more than 70 per cent in some countries.