The National Economic and Social Development Board (NESDB) has cut its forecast for this year's economic growth to 3-4 per cent after the fourth quarter of 2013 saw gross domestic product expand by a mere 0.6 per cent year on year.
That quarter was when the political protests in Bangkok started, and they have continued unabated.
The NESDB’s earlier estimate for 2014 GDP growth was 4-5 per cent.
The economy grew by 2.9 per cent for the whole of 2013, the NESDB said in a statement yesterday. Exports contracted 0.2 per cent and imports shrank 0.4 per cent, the agency said.
Gundy Cahyadi, an economist for DBS Group Research, noted that the economy expanded below the house’s expectations last quarter. While private investment fell 13.1 per cent on year and private consumption was down 4.5 per cent year on year, a boost from exports appeared to be the only positive factor.
"That said, risks remain. Look at how the manufacturing sector continued to see negative growth in the fourth quarter. Capacity utilisation continued to moderate, and this doesn’t bode well for the economy even if external demand picks up. It is important to see confidence being restored in the economy."
HSBC also raised concerns on the economy’s outlook.
"Despite beating consensus expectations, the breakdown of [the fourth-quarter] GDP data unsurprisingly reveals that heightened political tensions during the quarter have resulted in a clear deterioration in domestic activity, particularly within the business sector."
It noted that at 2.9 per cent, the 2013 GDP growth rate was lower than the 3 per cent predicted by the Bank of Thailand in November. This was also at the low end of the NESDB’s forecast range, and lower than the central bank’s forecast of 3.5 per cent.
The NESDB estimate for this year’s export growth is revised down to 5-7 per cent from the previous projection of 7 per cent, while its projection for 2014 import growth is cut to 5.7 per cent from the previous forecast of 6.7 per cent.
In 2013, Thailand’s trade account was in a surplus of US$6.4 billion (Bt207 billion).
The country’s current account was in a deficit of $2.8 billion. This year, the current account is expected to face a deficit of $600 million.
Last year’s inflation stayed at 2.2 per cent. Core inflation was 1.7 per cent. This year’s inflation is expected to be in a range of 1.9-2.9 per cent, down from the previous projection of 2.1-3.1 per cent, given low expansion in domestic demand and rises in oil prices. Unemployment was still low at no more than 1 per cent.
Bank of Thailand spokeswoman Roong Mallikamas said the new NESDB growth figure was close to what the central bank had estimated earlier.
"We have continued to use relaxed financial policy to support the country’s economic growth but we cannot say whether the BOT will revise the [benchmark] interest rate. That will depend on the Monetary Policy Committee," she said.
She also noted that the baht’s recovery to about 32.5 against the US dollar was due to a weakening of the greenback, and was probably temporary.
Meanwhile, given the political impact on the economy, an anonymous source from the Finance Ministry said it was uncertain whether credit rating agencies would downgrade Thailand. The source made the remark after Moody’s Investors Service and Fitch Ratings staff completed their data collection through conference calls with the ministry last week.
He said that a new government has not been formed yet, and thus investment spending has had to be postponed, which could have an impact on private consumption and private investment.
Moody’s and Fitch assigned "Baa1" and "BBB" for Thailand, with stable outlook.
In response to a question on whether a delay in the formation of a new government will affect 2015 fiscal year budgeting, the Finance Ministry insisted that state agencies would continue to disburse their budgets for both current expenditure and investment in the 2014 fiscal year. However, there is no budget for new investment.
The Bt2-trillion infrastructure-investment project is on hold until the new government decides whether to proceed with it as planned.
As for the government’s unpaid debts to Thai farmers in the rice-pledging scheme, the ratings agencies did not regard this as a technical default, but understood that the delayed payments were largely due to the prolonged political conflict.
There was not much concern over the government’s debt-repayment capability, thanks to its tax revenue, the source said, adding that the Finance Ministry expected the ratings agencies to announce their conclusions in the next one or two months.
Earlier, Moody’s shot a warning to Thailand on its fiscal discipline, which might have been affected by the rice-pledging scheme. Recently, the World Bank projected that the rice-subsidy programme faced a Bt400-billion loss for the first two years of Prime Minister Yingluck Shinawatra’s government.
Last month, Standard & Poor’s put Thailand’s long-term debt instrument’s credit rating at "BBB+", three levels above junk bonds, with "stable" outlook. However, there was a warning to keep a watch on Thailand, given its political uncertainty and low economic expansion.