The Nation


year-end special

Political chaos signals another rocky year for Thai economy

A screen displays stock price information alongside a news broadcast showing Democrat Party leader Abhisit Vejjajiva speaking in Parliament. The party

A screen displays stock price information alongside a news broadcast showing Democrat Party leader Abhisit Vejjajiva speaking in Parliament. The party

Uncertainty over govt projects to limit investment; mild growth seen for exports

The economy will undoubtedly brace for another turbulent year in 2014, primarily because of the prolonged political conflicts.

The bigger picture looks discouraging. Public and private investment - a key economic driver - will remain subdued as the prospects for the two major government projects - believed to draw in more private investment - are opaque. Exports, despite improving from 1-per-cent growth this year, should not hit a double-digit gallop. Consumption would remain low without stimulus measures.

Most economists had expected improvement in economic indicators next year, following the sharp fall in exports, investment and consumption this year. Yet, while projecting 2014 growth rates at 3-5.2 per cent - which is above the 2.6-4-per-cent range of projections for 2013 - most economists have not yet factored in the impacts from the prolonged political unrest.

"Thailand's government has dissolved parliament, but the opposition has pledged to boycott the February election and it is difficult to foresee a lasting solution to the impasse," Glenn Levine, a Moody's Analytics economist, said in a note released last week.

Last month, the Bank of Thailand revised down its 2014 GDP growth forecast to 4 per cent from 4.8 per cent.

Gundy Cahyadi, an economist of DBS Group Research, noted earlier this month that by this move, the central bank suggests that growth momentum may even be worse than what many expect going forward.

"The ultra-dovish view might have been spurred by an assumption that further delays to the government's infrastructure projects could be on the cards. Remember that we had also warned of another sub-4-per-cent GDP growth in 2014 should there be further delays to the government's infrastructure projects," he said.

TMB Analytics recently slashed its growth projection for 2014 from 4.2 per cent to 3.3 per cent, against the 2.9 per cent forecast for 2013, due to lower-than-expected investment and limited growth in consumption. While tourism should post lower growth, exports would be the only engine to drive the 2014 economy.

It expects investment to increase only 4.4 per cent next year from the previous forecast of 10.4 per cent. While public investment, chiefly through the Bt350 billion water-management scheme and the Bt2 trillion infrastructure scheme, is expected to fall by Bt93 billion from the earlier forecast, this would lead to a cut in private investment of Bt130 billion. The combined amount accounts for nearly 2 per cent of GDP.

Tourism operators had complained about the protests during November and December, and they are now fretting even more over bigger impacts if the protests continue to next year. In the wake of the airport closure in 2008 and the bloody protests in 2010, it took the tourism industry about six months to recover.

After anti-government protester leader Suthep Thaugsuban declared on Sunday that he would thwart the February 2 election, the baht yesterday dived to a three-year low of 32.68 to the US dollar.

"Investors aren't buying the Thai baht if this political situation continues," Kozo Hasegawa, a foreign-exchange trader at Sumitomo Mitsui Banking Corp in Bangkok, told Bloomberg. The baht may gradually weaken toward 32.9 per dollar as the political conflict threatens the economy, he said.

Foreigners are continuing to dump Thai shares. As of last Friday, their year-to-date net sales hit Bt192 billion. The Association of Securities Analysts made the original forecast that the SET Index would end the year at over 1,700 points. However, as of Friday the SET has slipped by 3.54 per cent from the end-2012 level on a combination of negative factors - political unrest, the US Federal Reserve's decision to taper its bond-buying programme and lower-than-expected earnings of listed companies.

The only benefit from the sluggish outlook could be low inflation.

DBS Research forecasts inflation to accelerate to 3.1 per cent in 2014 from 2.2 per cent in 2013, assuming steady increases in food prices and moderating terms of trade as well as some demand-side pressure from the government-led investment that would also prop up underlying inflation next year if materialised.

As factors at home are unfavourable, Thailand might ride along with other Asian economies to fully benefit from the improvement in the global economic outlook.

While noting that the global recovery was on the whole slightly disappointing, marked by problems in Europe, political distraction in the US and a weaker first half in China, Moody's Analytics said there are reasons to believe that 2014 will be better.

Its economist Glenn Levine sees global risks receding, most notably in Europe and to a lesser extent in the US. Europe's economy should add bulk in 2014 for the first time since 2011, which would help lift exports from Asia.

Christine Lagarde, managing director of the International Monetary Fund, on Sunday signalled that the IMF would raise its growth forecast for the US economy in 2014. The forecast now stands at 2.6 per cent.

Tomorrow: The outlook of the tourism industry

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