Siam Commercial Bank’s Economic Intelligence Centre (EIC) has revised down its growth forecast for Thailand’s gross domestic product this year to 3.8 per cent, with the economy entering the late expansion cycle.
Yunyong Thaicharoen, chief economist of the bank, on Tuesday said the centre was now forecasting economic growth at this level for 2019, lower than the estimated growth rate of 4.2 per cent achieved last year.
The revised figure signals that the Thai economy is entering the late expansion cycle owing to an economic slowdown in major economies and the impact of the developing trade war, which will put pressure on Thai export growth this year, Yunyong said.
Moreover, Thailand’s financial cycle has already peaked, resulting in tighter financial conditions. However, the projected growth rate is still better than those achieved of the previous five years, which averaged below 3 per cent per annum.
Positive factors contributing to the economy's expansion include domestic spending, especially investments, which are expected to accelerate as reflected in rising production capacities of various industries, continuing investments in the government's mega-projects, and the relocation of production bases into Thailand by foreign businesses affected by the trade war, the economist explained.
In addition, the EIC expects the number of foreign tourists visiting the Kingdom to expand by 5.7 per cent in 2019, with the number of Chinese tourists picking up again in the second quarter and becoming a driving force in the economy's expansion for the rest of the year.
Household consumption is expected to increase gradually thanks to low unemployment, a gradual income recovery, and government stimulus measures.
Challenges on both the domestic and international fronts lie ahead in 2019, according to the EIC’s analysis.
External factors that may impact the Thai economy include a possible intensifying trade war if negotiations between the US and China are prolonged and fuel uncertainty, which will adversely affect global economic growth.
Another factor is tightening global financial conditions, which will result in higher borrowing costs in many countries, while reducing capital flow to emerging markets and heightening financial volatility.
Moreover, there are geopolitical risks and political uncertainty in key regions, such as Brexit, the political situation in Italy, and the US sanctions on Iran.
Domestically, the EIC sees major challenges including concentrated spending patterns due to high household debts and a slow recovery of household income, which partly reflect the difficulties facing some workers and small and medium-sized enterprises in adapting to structural changes, especially rapid change in technologies and higher competition.
The centre also highlights tighter domestic financial conditions as a result of higher borrowing costs and macro-prudential measures which aim to control household-debt financing, and uncertainties from the upcoming national election, which will significantly affect consumer and investor confidence as well as future economic policy.
The EIC expects Thailand’s economic stability to remain sound, but all sectors should adapt quickly to structural changes.
Overall, the economy is in good conditions thanks to the current-account surplus, adequate foreign-exchange reserves, low unemployment, and relatively low public debts, enabling the use of fiscal policy as an economic stimulus.
Still, all sectors of the economy should work on risk management and boost competitiveness in the face of today's structural changes, such as the use of automation in many industries, consumers’ changing behaviour in everyday spending, and higher business competition from both domestic and international firms, the centre suggests.
Despite Thai economic stability, these factors may have a negative impact on households, labourers and businesses that cannot adapt in time, it added.