BOT cuts growth forecasts

business December 26, 2014 14:35

By The Nation

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Bank of Thailand has lowered the economic growth forecasts for 2014 and 2015 in light of downside risks.

In the Monetary Policy Committee Report, released after the December meeting, the 2014 forecast was revised down from 1.5 per cent to 0.8 per cent, while the 2015 forecast was cut from 4.8 per cent to 4.5 per cent.
"Downside risk comes from possibility of slower-than-expected global economic recovery and thus exports, and low farm income making a greater impact on consumption than expected," said Mathee Supapongse, assistant governor of the Bank of Thailand (BOT) and secretary of the Monetary Policy Committee (MPC), in the report.
"Upside risk stems from higher government disbursement than expected leading to more confidence in government policy and higher investment than expected."
The Thai economy is expected to recover steadily but at a slower pace than previous forecast due to a weaker outlook of both domestic demand and exports. On the domestic side, consumption is expected to gradually recover on the back of improving nonfarm income and employment, as well as lower oil prices. However, durable consumption, especially automobile purchases, is still impeded by high household debt and depressed farm income. In addition, government spending, particularly on investment projects, is likely to be lower than previously anticipated. This is due to project reviews and examinations for transparency issues, implementation capacity that does not expand fast enough to meet increased budgets, and labour scarcity in the construction sector. The prospect of public investment shortfall and slow recovery of domestic demand in turn have weighed down on investment decisions of most private businesses. An exception is the telecommunication industry which ramped up investment in H2/2014 to meet increasing demand for hi-speed internet and 3G network. exports are likely to grow at a lower rate due to weaker trading partners’ demand. 
Notwithstanding steady growth in the US, lower-than-expected growth of the Euro area economies, Japan, and China has caused exports of Asia and Thailand to slow. Additionally, domestic production limitations and depressed commodity prices would continue to affect Thai exports in the period ahead. For export of services, the rebound of Chinese tourists, whose confidence in Thailand’s political situation resumed quickly, has contributed to a steady recovery. Tourism will also receive additional benefit from lower fuel prices in the period ahead. Nevertheless, the recovery will be restrained by European and Russian tourists due to their weak economies, and the fact that some tourists remain concerned about the Thai political situation. 
In this condition, inflation is expected to expand by only 1.9 per cent, from the previous forecast of 2.2 per cent, due to weak demand as well as plunging oil prices.