Domestic consumption to steer Thai economy: RBS
Thailand is historically vulnerable to global economic ills through exports but should have enough consumption-driven momentum to ride out the current external turbulence, Royal Bank of Scotland Group said yesterday.
“The Thai economy is still very strong. The key reason is a recovery from floods,” Erik Lueth, senior regional economist of RBS, told a press briefing in Bangkok.
However, RBS urges the government to redesign its rice-pledging scheme, which is leading to a misallocation of resources.
Lueth said strong investment stemming from flood reconstruction and consumption driven by government expansion polices will help Thailand weather the global economic storm. The bank maintains its growth forecasts for Thailand of 5.7 per cent for this year and 5 per cent for next year. The Bank of Thailand’s policy rate cut to 2.75 per cent from 3 per cent on Wednesday came as a surprise.
Thailand’s domestic economy, or consumption, remains healthy compared with Singapore and Malaysia, which have been clobbered by global factors but have not yet loosened their monetary policies. Since it takes time for monetary policy to have an impact, the Bank of Thailand’s move could be construed as cushioning the country from the effects of a weak global economy, which would bite hard next year.
As an open economy, Thailand is susceptible to colds from an ailing global economy.
With an export-to-GDP ratio of 70 per cent – the highest in the region after Singapore, Hong Kong and Malaysia – Thailand is particularly exposed to the weak global environment. This was on display in 2008, when the economy was one of the hardest-hit by the collapse in global trade.
“Europe is still in crisis mode… the US is in healing mode,” he said.
China was not expected to suffer a hard landing, as its economic growth slowdown is expected to bottom out this quarter.
The European debt crisis is manageable but it would take some years for the economy to recover.
The bank projects Europe will expand 0.8 per cent next year while the US economy would grow 2 per cent. Over the long term, Thailand needs more investment particularly in infrastructure to steer the country to achieve its full economic growth potential.
The government is on the right track now, as it plans to invest Bt350 billion in water management and Bt2.2 trillion in infrastructure over the next seven years.
The government’s rice-pledging scheme was plagued with high costs and misallocation of resources.
