The International Monetary Fund recently raised concerns over slower growth in the world economy. Growth in global gross domestic product for this year was lowered by 1 percentage point from the IMF's July forecast to 3.3 per cent, while that for 2015 wa
For Thailand, slower global growth is a major hindrance to its own economic recovery. Thailand is attempting to revive its economy from the effects of the political crisis in the first half of 2014. However, recent data show exports continued to decline in July (down 0.9 per cent year on year) and August (down 7.4 per cent). Concurrently, the Bank of Thailand’s “Economic and Monetary Conditions” report showed that growth momentum in August declined slightly.
Based on the National Institute of Development Administration’s macro-econometric model, we recently revise our GDP growth forecast for 2014 down to 1.8 per cent because of weak export performance during the second and third quarters. However, we expect export recovery during the current fourth quarter.
Recent export data showed increasing world demand for electronic products (up 3.6 per cent in July and 7.4 per cent in August). In addition, the US recovery continues to improve. The coming consumer spending season in that country (November and December) should improve world demand, especially for electronic products. Therefore, export growth in 2014 is projected at 2 per cent.
As for domestic demand, consumer spending has continued to increase since the end of the political crisis, despite August’s decline in momentum. The recovery in private investment is still lagging behind consumption. However, we expect a rebound in investment starting this quarter. Therefore, the 2014 forecast for growth in private consumption is 1.1 per cent, while investment will decline by 1.8 per cent.
For 2015, Nida’s GDP growth forecast is 5.4 per cent. Domestic demand is expected to rebound significantly. Public and private investments are projected to grow by 8.0 and 11.2 per cent. Private consumption is expected to increase at 4.6 per cent.
This recovery process is the result of an equilibrium adjustment. The delayed investment projects and durable-goods consumption in 2014 will come back in 2015 when the political situation is stabilised.
We expect export expansion in 2015 because of improvements in the global market. The early stage of recovery in the United States focuses on the non-trade sector (for example the housing market) because of low interest rates and the quantitative easing programme.
However, improvement in consumer spending especially for durable products (for example electronic products, automobiles, and electrical and home appliances) should happen later, especially in the end-of-year spending season. The higher global demand could increase Thailand’s export value in 2015 by 6.8 per cent.
Next, we project Thailand’s headline inflation rate to end this year at 2.1 per cent, and reach 2.6 per cent next year. World crude-oil prices are expected to stabilise because of low demand from China.
Even though our 2015 inflation projection does not include the impacts of the government policy to lower subsidies on retail oil and gas products such as liquefied petroleum gas and natural gas for vehicles, the 2.6 per cent figure is still significantly far from the proposed inflation upper target band (about 4-5 per cent for headline inflation). Therefore, we expect no change in monetary policy between now and mid-2015. The policy interest rate may increase slightly from 2.00 to 2.25 per cent in the fourth quarter of 2015.
In addition, the baht is expected to weaken next year to around 33-34 to the US dollar.
In summary, the Thai economy is expected to rebound in 2015 from the adjustment in the equilibrium of consumption and investment. However, the global economic outlook and recovery process of the US economy are currently the most important risks to the Thai economy, which needs triggering factors to pull away from the effects of the political crisis. Therefore, the development of the world economy should be closely monitored to prepare for unexpected shocks that may hinder the local economic recovery process.
Yuthana Sethapramote PhD is director of the Master of Financial Economics (MFE) Programme, Graduate School of Development Economics, National Institute of Development Administration (Nida).