March 21, 2014 00:00 By Petchanet Pratruangkrai
Figure set at 2.5% after political chaos costs country Bt430 bn
Gross domestic product is expected to grow by only 2.5 per cent this year, the lowest rate since the serious flooding in 2011, as a result of the political unrest affecting all sectors, which has already caused about Bt430 billion in losses for the country, according to the University of the Thai Chamber of Commerce (UTCC).
Fitch Ratings warned that if the political deadlock lasts into the second half of the year, it might have to reassess its credit-rating outlook for the Kingdom.
“A continued blockage in the formation of a full government, or a government with authority, into the second half of the year could lead us to reassess the rating outlook,” Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, said in an interview in Singapore yesterday.
“If we have a government that doesn’t have the ability to implement a budget in 2015, that would be negative for the credit.
“If we get through to August, or maybe even July-August, and there’s no government in place or parliament in place that can implement a fiscal 2015 budget, then firstly that’s going to have quite a significant negative impact on growth,” he said.
“It would also send a bit of a negative signal about the country’s basic political stability.”
Fitch and Moody’s Investors Service earlier this month kept their credit ratings for Thailand unchanged with a stable outlook, citing the strong economic fundamentals while warning of risks to creditworthiness if the gridlock continues.
The UTCC’s Economic and Business Forecasting Centre yesterday lowere its forecast for economic growth this year from its December projection of 4.5 per cent to 2-3 per cent (averaging 2.5 per cent) as many sectors, mainly tourism, domestic consumption and investment, have been hit hard by the political problems since late last year.
“Because of the announcement of the emergency decree [in Bangkok and nearby provinces], Thailand has lost about Bt40 billion to Bt50 billion a month due to lower numbers of tourists, while during the [enforcement of the Internal] Security Act, the country would face a loss of Bt20 billion to Bt30 billion a month. As a result, during the past six months of political unrest, the Kingdom has already faced Bt430 billion in losses,” said Thanavath Phonvichai, director of the centre.
The UTCC’s forecast of GDP growth of 2-3 per cent is based on the supposition of Thailand getting a new government by midyear, while no serious violence breaks out. Tourism, investment and consumer spending could be expected to recover in the second half.
The UTCC projects that GDP in the current quarter will shrink by 1 per cent, and in the second quarter will grow slightly by 1-2 per cent, while in the second half of the year it will grow by 4-5 per cent.
By region, the North will grow by 9 per cent this year, the Northeast by 1.5 per cent, the South by 2 per cent, the Central region and West by 3.2 per cent, and Greater Bangkok by 2.4 per cent.
Based on the UTCC’s projection, overall consumption this year will increase by 1.5 per cent, investment will expand by 2.5 per cent and exports will grow by 4.8 per cent.
The agricultural sector will rise slightly by 2.7 per cent on worries over delayed payments under the rice-pledging scheme and drought. Industry will grow by 2.8 per cent after the economic recovery by many trading partners, despite the slowdown in domestic consumption.
For the tourism sector, the number of travellers is expected to grow slowly by 3.8 per cent to 27.75 million, while income increases by 5.5 per cent to Bt1.24 trillion.
Under the worst-case scenario, GDP growth could face a 1-percentage-point decline if the country cannot get a new government this year, or if any violence occurs.
Because of the political tension, many industries will continue to face slower growth this year. Small and medium-sized enterprises will be hit the hardest.
SMEs will experience a contraction of 1 per cent this year, the first decline since 2010.
Wachira Kuntaweethep, assistant director of the centre, said SMEs had reported that their sales have plummeted by 23.91 per cent this year, while profit dropped by 14.5 per cent compared with last year. Debt-payment ability also dropped by 10.5 percentage points, while more SMEs have run into liquidity problems.
Production costs have risen, while more SMEs are looking to lay off their employees in the future.
Businesses expected to face a contraction this year include property and construction companies (because of the delay in the government’s infrastructure-development and water-management mega-projects), automobile and electrical-appliance manufacturers, and retailers.