Future bleak after Q1 GDP contraction

Economy May 20, 2014 00:00

By Erich Parpart
The Nation

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A BLEAK economic outlook seems certain, as the National Economic and Social Development Board (NESDB) and several economic houses have chopped growth forecasts for this year because of lingering political impacts.

At its meeting on June 18, the Bank of Thailand is also expected to lower its forecast for growth in gross domestic product.

Yesterday, the NESDB announced that GDP in the first quarter contracted by 0.6 per cent year on year and 2.1 per cent from the previous quarter.

For the whole year, it lowered the forecast to 1.5-2.5 per cent, down from February’s projection of 3-4 per cent, on the belief that political uncertainty and the delay in the formation of a new government will take a toll on the economy.

Gundy Cahyadi, economist and group researcher at DBS Bank, said he was broadly disappointed by the first-quarter GDP data, which confirmed the weak momentum in the economy, especially on the domestic front.

“Both private-consumption expenditure and investment growth underperformed our expectations, signalling that the impact from the current political impasse on the economy may have been greater than we had initially thought,” he said.

DBS also cut the forecast from 3.1 per cent to below 2 per cent, because of the delay in the formation of the new permanent government

Meanwhile HSBC believes the BOT will lower its 2.7-per-cent growth forecast to below 2 per cent.

“Domestic conditions remain undoubtedly weak, and a resolution on the political front remains elusive. For as long as this uncertainty continues, the growth outlook will remain extremely murky, and in what almost appears to be a race to the bottom, policy-makers will have to keep reducing their growth forecasts,” said HSBC Asean economist Su Sian Lim.

Last week, TMB Bank cut its forecast for Thai GDP growth to 2 per cent from its previous forecast of 2.9 per cent, while Siam Commercial Bank’s Economic Intelligence Centre lowered its forecast to 1.6 per cent from 2.4 per cent. The University of the Thai Chamber of Commerce had previously mentioned the possibility of an economic recession.

BOT spokeswoman Roong Mallikamas said the NESDB’s growth revision was in line with the central bank’s overall picture for the first three months.

“The contraction of GDP in the first quarter was due to the slowdown in private consumption, but the central bank believes the second quarter will be better than the first thanks to the expected recovery of the tourism industry. As well, many economic indicators began to stabilise in March,” she said.

According to the NESDB, the contraction in the first quarter was largely due to a slump in domestic demand brought on by a decline in private consumption and total investment.

Increasing concerns over the political turmoil had lowered consumer confidence and continued to decelerate household income, which led to a 3-per-cent contraction in private-consumption expenditure.

Total investment declined by 9.8 per cent from the contractions in private and public investment by 7.3 and 19.3 per cent respectively. The slowdown in private investment reflected the declines in machinery, equipment, and construction investment, which are in line with the declines of import value of capital goods and of construction permits.

Similarly, public investment has gone down because of reduced disbursement of government budgets from the six-month absence of a functioning government and the postponement of infrastructure mega-projects.

The government’s overall budget-disbursement rate in the first quarter was 19.1 per cent, lower than the target of 24 per cent.

However, the NESDB praised the sound stability of the overall economy and a gradual recovery of exports.

The unemployment rate in the first quarter was low at 0.9 per cent. Export value also rose 0.9 per cent year on year. While the agricultural sector expanded by 0.8 per cent, manufacturing, construction, hotels, and retail trade declined.