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GDP Cut

Growth 'may be less than 2%'

Asian Development Bank president Takehiko Nakao and ADB senior country economist Luxmon Attapich attend a press conference yesterday.

Asian Development Bank president Takehiko Nakao and ADB senior country economist Luxmon Attapich attend a press conference yesterday.

Outlook for Thailand in stark contrast to other developing Asian economies, ADB says

The Asian Development Bank has warned that Thailand's economy might not expand even 2 per cent this year if there is no fully functioning government in the second half, while economics guru Virabongsa Ramangkura paints an even gloomier picture of plus-or-minus zero growth, due to the ongoing political problem.

If a working government is installed in the latter half, the economy could rev up by 2.9 per cent this year and bounce back to 4.5 per cent next year, the ADB said yesterday, presenting its annual outlook.

The ADB's drastic slash in its 2014 economic projection for Thailand is in stark contrast to its positive outlook for continuous growth in developing countries in Asia for the next two years, led by exports through the recovery of advanced economies.

Expansion in Asia's developing economies ran at 6.1 per cent last year and should speed up to 6.2 per cent this year and 6.4 per cent next year. Southeast Asia is expected to cruise at 5 per cent this year.

Luxmon Attapich, ADB senior country economist, said the political situation would continue to be a negative factor for Thailand's economic growth this year. The forecast of 2.9 per cent is similar to the actual growth last year, but it could be revised down even further if there is no permanent government even in the third quarter.

When there was no political problem last year, the ADB believed that Thailand's growth could be about 4.5-5 per cent this year because of the low base effect expected for 2013 and the assumption that growth in the United States and the European Union was strong.

"If there is no fully functioning government in place by the second half of the year, consumer confidence will continue to drop, investors will still 'wait and see' and the government budget for fiscal year 2015 will not be there, which means the country's economic growth will be much lower than 2.9 per cent," he said.

Besides the internal struggle, policy challenge is also something that the new government should be wary of. The deficiency in policy design, such as the rice-pledging scheme and the first-car buyer programme, is fiscally unsustainable and has raised doubts over who is the beneficiary and how it is funded, he said.

The badly designed and implemented policies contributed to the slowdown in domestic consumption last year because of the delay in payment to farmers and the rise in household debt that was exacerbated by the first-car programme.

"Last year's policy challenge is the policy itself," Luxmon said.

"A policy should be well targeted and fiscally sustainable, otherwise it cannot be a good policy," he said.

To tackle the policy challenge, the incoming government should consider creating an institution to oversee the government's policies, similar to the "Thailand Parliamentary Budget Officer" suggested by the Thailand Development Research Institute, he said.

More policy watch institutions were needed, and also more think tanks to provide more research options for political parties to pick and develop policies.

ADB president Takehiko Nakao said that since the region was able to cope with the volatile changes of the world economy in recent years, it will be able to continue its growth in the next two years due to lesser challenges than in the previous year and the recovery of the US, EU and Japanese economies.

ADB estimates combined GDP growth for the US, EU and Japan at 1.9 per cent for this year, which almost doubles the 1 per cent for last year. The GDP of the three countries is viewed as continuing to pick up by 2.2 per cent next year.

Virabongsa, chairman of the Strategy for Reconstruction and Future Development Commission and also a former deputy prime minister and finance minister, said on the sidelines of a seminar on "Toward Asean Development Administration" held by the National Institute of Development Administration to mark its 48th anniversary that it was hard to predict where Thai politics was heading.

Politics was like a train that stops at stations and then moves on when it is time to depart the stations, he said, adding, while the economic outlook could be predicted by using the market mechanism and purchasing power as clues, it is impossible to predict what would happen in politics.

Confidence in the economy would return when the political situation improves.

As for Thailand's integration into the Asean Economic Community, globalisation drives countries into forming economic communities to enhance competitiveness against other economic zones, he added.


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