THE ECONOMY will face a significant downside risk this year if the constitution-drafting process cannot proceed according to plan, a veteran economist said yesterday.
Supavud Saicheua, managing director of Phatra Securities, said the house’s 2016 growth forecast of 3.2 per cent was based on the junta’s strategy, which calls for the drafting process to be completed next quarter and draft laws later this year.
“The constitution confirms the transfer of power [to the people], leading to the election next year. If this process does not meet the road map, a significant downside risk is foreseeable,” he said at the Thai Institute of Directors’ briefing on the economic outlook.
This could exacerbate the economy’s poor performance, which is slated for the worst quarter of the year, taking into account the possibility of severe drought, the tourism industry’s low season, US interest-rate increases and possible devaluation of the Chinese yuan.
“Political risks carry the greatest weight. In this situation, private investment could be in a waiting mode,” he said.
Thailand is also warned of volatile commodity prices as well as risks in several emerging markets, chiefly China, as these will be the factors dictating global financial markets this year.
A lot depends on China’s future action on the dollar/yuan exchange rate as well as the economic situation.
Oil prices last week ended below the psychological threshold of US$30 per barrel. Reuters cited Oslo-based consultancy Rystad Energy as expecting global oil and gas investments this year to fall to their lowest in six years to $522 billion, following a 22-per-cent fall to $595 billion last year.
“Looking at the oil-price track record over the past 150 years, $30 is not unusual. Yet markets are concerned that a further fall in China’s demand could export deflation to |the world,” Supavud said.
At the event, former finance minister Chalongphob Sussangkarn expressed concern about Thailand’s economic fundamentals, which remain the weakest among Asean nations.
He cast doubt that the resurrection of the export sector, which has contracted in the past three years, would lift the economy, given the surge in import contents in manufacturing from 18 per cent per export unit in 1980 to 50 per cent.
Infrastructure projects also depend on high import content – more than 50 per cent in infrastructure mega-projects.
“This means the efficiency in driving the economy will remain low,” he said.
Better management of exchange rates is crucial, as exports are likely to remain at the low end this year, Chalongphob said. Though the baht became weaker than 36 per dollar last year, its intrinsic value actually appreciated against trading partners’ currencies based on the nominal effective exchange rate.
With annual exports of more than $220 billion, actual depreciation by Bt1 per dollar could inject more than Bt220 billion into the economy.
While urging the government to refocus efforts on Thailand’s advantages – food and agriculture, as well as tourism – Chalongphob called for the leveraging of mega-project investment to deepen the country’s industrial structure.
“If we are to invest hugely on rail, without industrial support, import contents will remain high [leaving little benefit to the economy]. This requires a clear policy, which remains missing now,” he said.
Thailand also needs new niche products. For example, after the eco-car scheme, the government needs to discuss with automakers whether Thailand can become a manufacturing base for electric cars, Chalongphob said.