Continuing downside risks worrying, say economists

Economy May 18, 2015 01:00

By Achara Deboonme
The Nation

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A batch of subdued economic indicators is expected to come out today when the National Economic and Social Development Board releases first-quarter GDP-related results.

While the Finance Ministry maintains the view that the economy this year will expand by at least 3.5 per cent, most economists are convinced that the first quarter’s performance will be restrained, as all economic engines but tourism are faring worse than expected.

DBS Group is prepared to revise down its full-year growth forecast from 3.6 per cent to 3.5 per cent, pending first-quarter data.

"We continue seeing downside risks to this forecast," its economist Gundy Cahyadi said last week.

Much of the attention is trained on the export sector, which contributes a whopping 60-plus per cent of GDP. The 4.7-per-cent contraction in outbound shipments in the first quarter is going further downhill from the 1.6-per-cent retreat seen in the fourth quarter of last year, which is likely to push export growth to below 1 per cent for this whole year.

DBS had expected flat exports in the quarter. Meanwhile, imports fell much faster than exports, though the baht has gained about 10 per cent on an effective exchange rate basis since January 14.

"The sustained weakness in import growth is partly due to lower crude oil prices. But we also continue to see signs that underlying domestic demand remains weak.

"Core inflation is still falling. Private consumption growth may remain below 4 per cent for longer than we have previously thought.

"Even investment growth may come in below 5 per cent this year, despite low base effects," he said.

DBS sees first-quarter GDP growth at 3.5 per cent.

Though expecting quarterly growth at 3.9 per cent year on year, up from 2.9 per cent in the fourth quarter, Faraz Syed, an associate economist at Moody’s Analytics, believes that Thailand’s prospects appear to be the dimmest among Asean nations.

The Thai economy was also affected by falling commodity prices, which suppressed farm income and agricultural production, he said.

The Bank of Thailand in March and April cut the policy rate by 50 basis points to kick-start the domestic recovery.

"But a consumption-led recovery appears some way off, as household debt has climbed over 85 per cent of GDP.

"Although lower rates should weaken the currency and improve export competitiveness, structural issues need to be addressed to encourage foreign investment," he said.

Indonesia is now attracting new investment from Japanese automakers with improving governance, while other countries offer lower production costs.

A lack of innovation and tight regulations also stifles investment in the once bustling electronics industry.

Forecasting a 5.2-per-cent upside for Asia this year, HSBC pegs Thailand at only 3.6 per cent. As the policy rate will likely stay at 1.50 per cent all the way to the second quarter of next year, it expects the baht to continue weakening from 32.9 per US dollar at the end of last year to 33.7 this year and 34.1 next year.

Expecting only 2.8-per-cent growth from the fourth quarter of last year, TMB Analytics notes that all engines slowed down except the tourism industry, as visitor arrivals have surged by 23.5 per cent year on year.

As all other drivers are down, speedier public spending is in order, as only Bt118 billion of fixed expenditure budget has been disbursed from October-March, or only 23 per cent of the 2015 fiscal budget.

Though quarterly disbursement of public investment spurted 123.1 per cent from the fourth quarter of last year, it was due to the low base amid the political turmoil.