Thailand's economic growth this year could slip below 2.6 per cent if a new government cannot be formed by the end of the third quarter, according to the Finance Ministry's Fiscal Policy Office (FPO).
Meanwhile, the central bank expressed a worry over a delay in the implementation of the 2015 fiscal budget, which would further postpone government investment with a consequent impact on the country’s economic growth.
Meanwhile, a 16.6-per-cent contraction in February’s imports presaged a slowdown in future investments by the private sector.
The FPO yesterday announced a cut in its growth forecast for 2014 gross domestic product to 2.6 per cent from 4.1 per cent previously. However, this was based on the assumption that there will be a new government in place by the third quarter.
FPO director-general Somchai Sujjapongse said the main reason for the downgrade was the impact of the prolonged political problem on the confidence of consumers, investors and foreign tourists as well as the delay of the state’s investment plan.
“If the prolonged political uncertainty lasts longer than was expected [in October], this will have an impact on the financial sector, especially financial institutions’ ability to cover clients’ debts, resulting in the Thai economy at the macro level [being affected] and then the country’s credit rating,” Somchai said.
He also said the FPO has lowered its export-growth forecast for 2014 to 5 per cent from 6.5 per cent previously. Meanwhile, the private sector’s consumption this year was expected to grow by 2.3 per cent and investment by 1.9 per cent.
Somchai said other risks that Thailand would face this year were the United States’ tapering of its bond-purchasing programme, slower economic growth in China, foreign political conflicts such as the one over Crimea, and, at home, drought and a possible reversion of the corporate income tax to 30 per cent in September from 20 per cent currently.
Bank of Thailand spokeswoman Dr Roong Poshyananda Mallikamas conceded in an interview with The Nation yesterday that there were worries over delayed state investment if a new government cannot be formed by the end of the third quarter. This would result in a longer delay in implementation of the 2015 fiscal budget than expected. Previously, the BOT expected a delay of three months.
The government typically implements its annual fiscal budget from October.
Recently, the BOT downgraded its GDP growth forecast to 2.7 per cent from the 4.8 per cent estimated last October.
Roong said a sharp drop in February’s imports anticipated a slowdown in investments. An export recovery could encourage the private sector to invest more, but February’s export growth rate of 2.4 per cent was not higher than expected.
The BOT has left unchanged its previous forecast for exports this year to grow by 4.5 per cent.
Roong also said the BOT’s recent cut in the policy interest rate by 25 basis points to 2 per cent was a kind of monetary-easing policy to stimulate the economy, as the GDP growth rate has been below its real potential. Thailand has been faced with negative shocks intermittently for years, including the heavy floods in 2011, a slowdown in the global economy and political chaos.
“But we don’t expect to use a low-interest-rate measure much to stimulate the economy,” she said.
Meanwhile, HSBC reiterated in its latest quarterly economic report that it was downgrading further its Thai GDP forecast in light of the protracted political uncertainty.
“We now look for growth of 3 per cent and 4 per cent in 2014 and 2015 respectively,” the bank said.