World Bank sees dimmer Thai economic outlook

Economy June 12, 2014 00:00

By The Nation

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Thailand's economic growth would keep tapering this year and the outlook remains uncertain due to continued political tensions, while global growth is also lacking vigour, according to the World Bank.

The forecast for Thailand’s economic growth has been slashed to 2.5 per cent from 3 per cent in April, according to the semi-annual "Global Economic Prospects" report released on Tuesday.

Growth is expected to pick up to 4.5 per cent next year and the following year.

In East Asia and the Pacific, growth is viewed at 7.1 per cent this and next year, before easing to 7 per cent in 2016.

Outside of China, regional growth would slow somewhat this year due to the tightening of domestic policies and the political tensions.

"Recent political tensions have introduced some uncertainty to the outlook," the report said.

"A projected acceleration of growth in the Philippines in 2015 reflects accelerated reconstruction efforts. Overall, aggregate growth for the region, excluding China, is projected to settle at around 5.5 per cent by 2016 as external demand solidifies, the domestic adjustment process comes to an end and Thailand recovers from political crisis. In particular, growth in the Asean-4 is projected to track potential output."

Vietnam would continue to benefit from recovering global demand due to improved macroeconomic fundamentals, including improved price stability, with GDP growth expected to increase modestly, but steadily to reach 5.8 per cent by 2016.

In Indonesia, growth will ease to 5.3 per cent this year as the economy adjusts to tighter financing conditions, before stabilising at 5.6 per cent in the next two years on the back of recovering exports.

This year marks the third straight year for developing economies to expand by less than 5 per cent, a factor that has contributed to rising debt-to-GDP ratios that could make those economies more vulnerable, Andrew Burns, the report’s lead author, told Reuters.

"Although the situation in developing countries is pretty good ... it isn’t the kind of growth they’re going to need if they’re going to make the very solid inroads into poverty that we’re hoping," he said.

The global growth forecast was trimmed due to a confluence of events, from the Ukraine crisis to unusually cold weather in the United States, which dampened economic expansion in the first half of the year.

The poverty-fighting institution predicted the world economy would grow 2.8 per cent this year, below its January forecast of 3.2 per cent, but expressed confidence that activity was already shifting to more solid footing.

Tensions between Ukraine and Russia hit confidence worldwide. The bank also cut its growth forecast for the United States to 2.1 per cent from 2.8 per cent to account for the weather at the start of the year.

The US economy contracted for the first time in three years in the first quarter, but it already appears to be rebounding.

"Yes, there has been a big downgrade in 2014," Burns said.

"But that’s mainly a reflection of stuff that’s already happened."

Growth should quicken later this year as richer economies continue their recovery.

The global growth forecasts for the next two years remain unchanged at 3.4 per cent and 3.5 per cent.

The forecasts assume tensions in Ukraine will persist this year but won’t worsen. An escalation in the crisis could further shake global confidence, prompting firms to postpone investments and crimping growth in developing economies by as much as 1.4 percentage points under the worst-case scenario.

There is a possibility of financial volatility in emerging markets once the US Federal Reserve starts to raise interest rates, mopping up some of the liquidity glut in global markets.

Emerging markets have not fully priced in the potential for a monetary tightening in richer economies.

"The real concern is what happens in 2015, 2016," Burns said.

Developing countries need to do more to address structural issues that are holding back growth, he added.

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