The Nation



GDP growth unlikely to be affected if election held on schedule, economists say

Economists do not expect the dissolution of Parliament to affect the economy, which is projected to grow by 4.5 per cent next year if there is a new election.

Kampol Adireksombat, senior economist at Tisco Securities, said that monitoring was needed on whether an election will be held. According to the Constitution, a new election shall take place 45-60 days after the dissolution of the House.

Kampol said that if there is an election, growth might be close to current projections. Tisco Securities forecasts GDP to grow by 4.5 per cent in 2014. After the election and formation of a new government, its new policies, particularly those involving investment that affect growth significantly, should be under watch, he said.

"After the election, we have to see whether policies will be changed. If they focus on consumption, there may be no change. And we may not be able to provide more stimulus to consumption. Now is different from the past two years when such stimulus was feasible. At that time, household debts were not high and people were willing to consume and borrow, while the banks were willing to extend loans. However, debts have risen to a much higher level. Banks now are more prudent with their lending," he said.

If an election cannot be held, public investment, particularly in mega-projects, will be difficult to move on, and private investment, which usually follows the former, will not be made, he said. In that scenario, Tisco Securities forecasts GDP growth at 3.5-4 per cent.

The SET Index yesterday rose 0.43 per cent to close at 1,367.42. The index rose at the opening, after Prime Minister Yingluck Shinawatra's announcement that she would call for a House dissolution. It gained as much as 16.45 points. However, the morning session ended 1.58 points or 0.12 per cent lower, at 1,359.99 points.

In a research note, Asia Plus Securities said that if the political wrangling continued, a vacuum like the one seen in 2006 would return.

"The decision to dissolve the House came too late," it said. "This followed the Democrat Party's plan for mass resignation. It is highly possible that the party will not join the upcoming election and the situation will be like in 2006, when three political parties boycotted the election." The 2006 political vacuum culminated in a coup later in the year.

After the House dissolution, KT Zmico Securities foresaw a chance that the SET Index could rebound by 8 per cent in a one-month period. However, if the situation remains unresolved for some time or there is violence, it foresaw that GDP growth in the fourth quarter would be less than 1 per cent, which would pull down the annualised growth rate to 3 per cent or lower.

Capital Nomura Securities said growth this quarter could range between 1.4 per cent to minus-1.4 per cent, because of a slowdown in tourism, private investment and consumption.

Sutapa Amornvivat, chief economist at the SCB Economic Intelligence Centre (EIC), said the health of the economy would be affected by how public investment under the planned transport-infrastructure and water-management programmes is carried out. Public investment attracts private investment and fuels domestic consumption, both engines of economic growth.

Delays in public investment would worry private investors and consumers, she said.

Before the political turmoil, the EIC predicted that GDP next year would grow by 4.5 per cent but could be as low as 4 per cent if the borrowing bill for the Bt2-trillion infrastructure project ran into problems. The country's fundamentals are unchanged, however, so even if the bill were shot down, state agencies could inject the investment through the fiscal budget.

Charl Kengchon, managing director of Kasikorn Research Centre, said KResearch was still projecting GDP growth at 4.5 per cent next year.

The research centre cannot predict whether the election will be held on schedule or not, or whether the government can function, but he added that the key driver of Thai economic growth next year would be exports, not public spending.

Bank of Thailand Deputy Governor Krik Vanikkul said the House dissolution sent a positive signal that the political situation could improve but the situation needed to be monitored. According to the BOT's preliminary estimate, this is unlikely to hurt GDP growth.

He added that lending by financial institutions was unlikely to slow, as the private sector still needed to invest. BOT Assistant Governor Paiboon Kittisrikangwan said it was too soon to evaluate the economic situation as it was hard to predict what the protesters would do next.

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