External factors at play as maximum revised to 2%
The National Economic and Social Development Board yesterday tweaked its maximum economic-growth forecast down from 2.5 per cent to 2.0 per cent for this year on external risks despite the escape from a recession in the second quarter and better-than-expected performance in the first half.
“The missing 0.5 percentage point is all because of external factors and the slower-than-expected recovery of the export sector, which only managed to improve in June. We expect the sector to grow by only by 2 per cent this year instead of our previous projection of 3.7 per cent,” said Arkhom Termpittayaphaisith, secretary-general of the NESDB.
The external factors include geopolitical risks in Europe, which have created uncertainty in the recovery of the global economy and slowed recovery of Thailand’s exports, and Beijing’s amendment of its group-tour policy.
The political turmoil in Thailand at the beginning of the year contributed to a drop in tourist arrivals, especially from China, in the first half.
The revival of consumer confidence after the coup along with greater certainty in public investment and the acceleration of government spending that were provided by the National Council for Peace and Order’s economic-stimulus policies have led to the recovery of the economy and an uplift in business and investment sentiment.
However, the actual injection of capital from the expected increase in investment into the economy has yet to be seen, so the rebound in investment is still sluggish.
“Consumer confidence has definitely improved … and the confidence of the tourism industry will follow from the increase in political stability, but private investment will recover last since, they [private investors] will take time to consider their options despite the return of confidence because of the financial scale of the projects,” Arkhom said.
The payment to farmers under the rice-pledging scheme, the Board of Investment’s approval of projects that were stalled during the caretaker government, the maintaining of the value-added tax (VAT) rate at 7 per cent, and the acceleration of government and household spending allowed the economy in the second quarter to grow by 0.4 per cent year on year and 0.9 per cent from the previous quarter.
However, subdued tourism receipts and slow export orders have led the NESDB to revise its projection for the whole year.
Minor contraction in H1
The NESDB noted a minor contraction of 0.1 per cent in the first half and projected an economic expansion of 3.5-4.5 per cent next year, which is still lower than the growth potential of 4-6 per cent in gross domestic product.
The 2015 growth forecast for the export sector is set at 5-7 per cent, which is still lower than the potential of 10 per cent.
The planned government investment in rural roads, energy, public transport in Bangkok and the water management programme will eventually reinvigorate private investment and buoy the economy, it said. However, the government will have to concentrate on boosting exports through updating value-added products, continuing support for the tourism industry and disbursing state budgets in the second half in order for the economy to continue its recovery into next year.
Government budget disbursement of 91.3 per cent is now expected by the NESDB in the fourth quarter, which is an increase from its previous prediction of 90.4 per cent, but still behind the 92-per-cent target, Arkhom said.
Tim Leelahaphan, an economist at Maybank Kim Eng Securities, said the brokerage was likely to maintain its GDP growth projection for 2014 at 2.5 per cent.
It expects that the effects of the junta’s economic policies will be visible for rest of this year in restored consumer confidence and business sentiment along with government spending that has returned to normalcy.
Maybank predicts GDP growth of 3.5-4 per cent next year.
Nalin Chutchotitham, an HSBC economist, said the Thai economy had avoided a technical recession but was unlikely to return to more robust growth soon. In the second quarter, the economy grew 0.4 per cent year on year and 0.9 per cent quarter on quarter. Both numbers were slightly better than market expectations.
In annual terms, net exports continued to contribute to growth but mainly because of the contraction of imports.
Growth forecasts down
The Office of the National Economic and Social Development Board (NESDB) now forecasts economic growth this year of 1.5-2 per cent, while other institutions forecast 1.5-2.5 per cent. These are lower than estimates made in the first quarter of the year.
Institution Early forecast (%) Current forecast (%)
NESDB 1.5-2.5 1.5-2.0
Bank of Thailand* 2.7 1.5
Fiscal Policy Office* 2.6 1.5-2.5
Kasikorn Research* 1.8 2.3
University of the Thai Chamber of Commerce* 2.5 2.2
Thailand Development Research Institute* 2-2.5 1.5-2
* Estimates before the NESDB announced its latest GDP growth forecast yesterday.