New govt needed by July: economists

Economy March 04, 2014 00:00

By Sucheera Pinijparakarn
The Na

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Warn of bleak outlook if export sector fails to recover

The country’s economic outlook remains challenging if a new government cannot be formed by midyear and the export sector does not recover, some economists say.

Kasikorn Research Centre says that even though businesses can resume operating as usual now that the anti-government movement has ended its campaign to paralyse Bangkok and returned the streets to the city’s residents, Thai gross domestic product could shrink by 2 per cent this year if a government is not in place by the second half. 
The research house has maintained its estimate for GDP growth of 3 per cent as it wants to wait to see how the political situation develops over the next two months, including the expected ruling by the National Anti-Corruption Commission on caretaker Prime Minister Yingluck Shinawatra’s handling of the rice-pledging scheme.
Pimonwan Mahujchariya-wong, deputy managing director of KResearch, said that if Parliament cannot be opened to discuss the fiscal budget by midyear, the economy in the second half would witness more trouble. 
GDP in the first half could expand by 0.3-1.2 per cent year on year despite lower consumption, because exports will be a trigger of economic growth in the second quarter. But if exports are not able to resume healthy growth, there could be a recession, she said.
The worse case is for the economy to grow by only 0.5 per cent this year if the political situation erupts into chaos, said the economist.
Kangana Chockpisansin, head of the macroeconomic research department at KResearch, added that the external political risks in Ukraine and Russia would add pressure to the Thai economy in terms of inflation, because the situation in those two countries would drive up oil prices.
As for Thailand’s own domestic difficulties, Siam Commercial Bank’s Economic Intelligence Centre agrees that a further delay in the formation of a new government will hold down economic growth even though the EIC forecasts a recovery of export growth to 5 per cent.
The EIC noted that it would be difficult for the economy to stage a rebound from last year’s sub-par growth of 2.9 per cent, and GDP in 2014 could grow by only 2.4 per cent.
The centre sees little risk of financial instability, as the Bank of Thailand can reduce the policy interest rate to lessen the financial burden of the weakening economy. A lower interest rate is not likely to send the wrong message and cause households to take on more debt to drive consumption. The EIC expects a 25-basis-poing cut in the policy rate next week and another cut in the first half of the year, leaving the rate at 1.75 per cent for the rest of the year.
However, KResearch takes the view that the BOT’s benchmark rate will be left unchanged at the Monetary Policy Committee meeting on March 12.
Charl Kengchon, managing director of KResearch, said the house expected the MPC to maintain the rate at 2.25 per cent because the gap between the current policy rate and the inflation rate of 1.93 per cent is narrow, which does not provide room for the committee to cut the rate much. The MPC might decide to monitor the political impacts on the economy for a while before making a move.