April 30, 2014 00:00 By Sucheera Pinijparakarn
Likely delay in formation of new government will impact GDP growth, says SCB think-tank
The economy is likely to show weak growth well into next year because the delay in forming a new government will stifle public investment and drag out negotiations with the European Union on signing a free-trade agreement to compensate for the loss of privileges under the generalised system of privileges (GSP).
Siam Commercial Bank’s Economic Intelligence Centre (EIC) now sees the country getting a functional government by the end of this year instead of by next quarter.
The EIC expects the fiscal 2015 budget to be implemented by the second quarter of next year.
The loss of GSP on January 1 will seriously hurt exports of frozen seafood, garments and motorcycles, which account for 0.7 per cent of gross domestic product (GDP), Sutapa Amornvivat, a first executive vice president and chief economist of the EIC, said yesterday.
Another issue that could pressure GDP is the value-added tax, she said.
VAT a concern
The private sector is worried about VAT returning to 10 per cent after the law temporarily reducing it to 7 per cent expires on September 30.
The ongoing political uncertainty has caused Thailand’s GDP to lag behind that of neighbouring countries.
The country is also facing a problem with its ageing population, which is a challenge for GDP growth in the long run.
GDP in 2015, however, should be better than this year because the global economy is expected to recover fully and that will benefit the export sector.
The EIC yesterday revised down its economic growth forecast for this year to 1.6 per cent from 2.4 per cent.
Exports are the only sector to drive GDP growth even though the EIC also revised down export growth this year to 4 per cent from 5 per cent. Exports contracted by 1 per cent year on year in the first quarter due to falling shipments of major agricultural commodities, including rubber and seafood.
However, exports saw positive signs for revival in the second half, especially for electronic equipment and electric appliances.
Imports of capital goods are also a good sign, as that means the private sector is preparing for further expansion.