SIAM Commercial Bank’s (SCB) economic research unit has whittled back its expectations for the country’s economic growth this year to 3.6 per cent as the US-China trade war keeps exports under pressure.
The bank’s Economic Intelligence Centre (EIC) in January forecast 3.8 per cent growth for 2019, but the growing impact of the trade conflict prompted the revision, said Yunyong Thaicharoen, first executive vice president and head of the EIC, who also cited tightening global financial conditions.
Yunyong was speaking yesterday at a press conference held each quarter by the EIC on the economic direction of Thailand.
As a result of the trade war, the EIC has cut its forecast for export growth to 2.7 per cent, from an earlier estimate of 3.4 per cent.
“Multiple meetings between US President Donald Trump and China’s Xi Jinping are set to occur throughout this year,” Yunyong said. “Although we expect China to meet some of President Trump's demands, such as increasing imports of US goods to China and being more strict on intellectual property, the trade war is ultimately not about the US's trade deficit with China. Instead, it is a competition between the two superpowers to advance their technological influence in the word.”
For this reason, Yunyong said he believes the superpower trade dispute will not come to a conclusion at a foreseeable date, making it a long-term problem for the Thai economy, which is integrated into the supply chain of goods affected by the tariffs each country has imposed on the other.
Private investment is also predicted to decelerate from the end of last year, with investor sentiment affected by factors such as the trade war and Thailand's political uncertainty. The EIC predicts that private investment will grow by just 3.8 per cent, against 3.9 per cent expansion last year.
On Tuesday, the International Monetary Fund (IMF) cuts its forecast for global GDP growth from the 3.5 per cent forecast in January to 3.3 per cent.
“The global economy is expected to exhibit synchronised deceleration in growth, due to various factors such as the trade war and the impacts of the increase in interest rates by the US Federal Reserve back in 2018,” Yunyong said.
“Although the Feds have since signalled that they may not aggressively hike rates in 2019, the impacts of last year's increased interest rate on the global economy still persist to this day.”
As for Thailand, Yunyong predicts that the Bank of Thailand (BOT) will maintain its policy rate at 1.75 per cent throughout the year, given the internal and external risk factors facing the economy.
“Furthermore, the inflation level in the first two months has been at a low 0.7 per cent. We predict that the inflation level in 2019 will be 0.9 per cent on average. This low inflation level is another incentive for the BOT to maintain their policy rate,” he said.
Positive factors for economic growth in 2019 include increased public investment and a recovery under way in tourism.
Public investment is estimated to grow by 6.4 per cent in 2019 from last year’s meagre expansion of 3.3 per cent. This is largely due to the proposed public infrastructure projects, which are estimated at Bt760 billion this year, according to the EIC.
“Investment from both the public and private sectors will be the key economic driver in 2019,” Titanun Mallikamas, assistant governor of the central bank’s monetary group, said at a separate event yesterday.
The BOT estimates that this year, public investment will grow by 6.6 per cent and private investment by 5 per cent.
“As these projects throughout the country and in the Eastern Economic Corridor (EEC) are ongoing projects, they are unlikely to be disrupted by political uncertainty and potential instability in the upcoming months,” Yunyong said.
The tourism industry has started to recover from last year's slump. The EIC expects up to 40.7 million tourists to visit the Kingdom this year. As for the strengthening of the baht, the EIC expects the currency to remain strong throughout 2019, forecasting it will close the year at between Bt31 and Bt32 to the US dollar.
Given the baht’s strength, Titinan urges exporters to not only depend on price for competitiveness but focus more on the quality of their products to compete with Thailand's rivals in the Asean region.
Somkiat Tangkitvanich, president of the Thailand Development Research Institute (TDRI), said: “The government needs to facilitate investment from Thailand to foreign markets, especially in this region.
“This will benefit Thai investors in the long run and help weaken the baht, which will benefit exporters in the country.”