The Nation



Uncertainty hits growth forecasts

Supavud Chaicheua, Phatra managing director

Supavud Chaicheua, Phatra managing director

Unclear political outlook bad for investment, government projects, research houses say

The political upheaval is the biggest stumbling block facing the economy's performance next year, with the worst-case scenario being a failure to hold a general election leading in turn to an absence of growth, according to research houses.

"If the situation worsens, it will get [the economy] into so much trouble," Supavud Chaicheua, managing direc-tor of Phatra Securities Plc, said last week.

Phatra Securities' "flat" forecast growth follows Kasikorn Research Centre's 0.5-per-cent worst-case forecast released last week.

The month-long anti-government protest is still running even though caretaker Prime Minister Yingluck Shinawatra dissolved the House and called for a general election in February.

Three forums have been held in the past four days. The People's Democratic Reform Committee (PDRC) still vows to establish a "People's Council", or interim government.

However, a temporary council has no legitimacy to run the country, Supavud said.

With no government, state-funded projects might not be allowed to proceed, he said.

"Foreign investors have a tendency not to accept this solution," he said, referring to the PDRC's proposal.

The brokerage has lowered its forecast for economic growth next year to 4.3 per cent from 5 per cent on the base-case scenario that the country holds an election.

"We think this scenario has the greatest probability," he said.

The company's research note distributed by Merrill Lynch estimates that in the base case the Pheu Thai Party would be returned to lead the new government with 220 seats, down from 260 in the old government. However, its hold on power would be less secure because of lower popularity. The opposition Democrat Party was expected to win 170 seats, a gain from 150 seats previously.

The new government, expected to be led by Pheu Thai, would face three challenges - administration could be not as easy and smooth as before; Bangkok people do not welcome it; and time must be spent on political reform.

"We think the country will spend almost all of next year on reform," he said.

The most likely drivers of the economy next year were expected to be exports and both public and private investment, which were each expected to increase by 6-8 per cent. Consumption is expected to rise by 3 per cent.

"The internal political turmoil is the biggest risk factor next year, followed by the [US] Federal Reserve's unwinding of its monetary-easing programme with QE tapering expected in December or January," he said.

He said QE tapering would result in the US 10-year treasury bond coupon rate climbing to 3.75 per cent in the third quarter next year from 2.8 per cent currently. Thailand's interest rate of 4 per cent now is likely to reach 5 per cent. Capital outflows and the higher cost of funds would also sap Thai stocks' valuation.

DBS Bank reiterated in a research note that this year has been a dis-appointment with estimated GDP growth at 3.2 per cent, below the country's potential of 5.5 per cent, due to the political unrest undermining consumption.

For next year, the key is the Bt2-trillion infrastructure project, assuming that it kicks off by the second quarter no matter which party forms the new government. GDP growth should reach 4.5 per cent.

Export growth has shown some signs of bottoming out. Capacity utilisation has also risen slightly. On improved external demand, export growth might accelerate to 8 per cent next year.

External liquidity is not a concern as the international reserves of US$164 billion (Bt5.25 trillion) projected for this year-end, even though they will be $7 billion lower than last year, are equivalent to about eight months of imports and are still about 20 per cent more than total external debts.

Failure by the government to kick off the Bt2-trillion transport-infrastructure mega-project next year could see GDP growth falling below 4 per cent. The Bank of Thailand might be forced to trim its interest rate even further.

The central bank surprised the market at its last meeting with a 50-basis-point reduction in its policy interest rate to 2.25 per cent.

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