Limited 2012 growth amid challenges next year
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Thailand's economy is expected to expand by 5.5 per cent this year, the lowest end of the 5.5-6 per cent forecast of the National Economic and Social Development Board (NESDB).
Next year, the economy could expand in the range of 4.5-5.5 per cent, amid a number of external challenges including capital inflows which could strengthen the Thai baht as well as measures to deal with the US fiscal cliff and the euro zone debt.
NESDB secretary-general Akhom Tempittayapaisit said that flood recovery was slower than expected. As of Nov 2, 155 factories - 18.5 per cent of all inundated factories - are strill struggling to reopen their shops. Industrial output and export would then fall lower than the previous estimate.
"There is less chance that the economy could expand beyond 5.5 per cent," he said.
Moreover, global economic recovery is slower than expected, putting pressure on export value and volume.
According to the NESDB, the Thai economy expanded 3 per cent in the third quarter, in line with consensus. Moody's Analytics penciled 2.2 per cent due to weak global technology demand, after 4.2 per cent growth in the second quarter.
In the third quarter, private consumption quickened to 6 per cent on year (against 5.3 per cent in the second quarter) and government consumption also grew 9 per cent on year, against 7.4 per cent in the previous quarter. Investment growth accelerated to 15.5 per cent.
Dragging the economy was the 2.8 per cent export contraction, led by a deeper nosedive for goods exports . Imports also fell for the first time since the fourth quarter of 2009, declining 1.8 per cent on year. Manufacturing activity shrank -1.1 per cent on year due to the external drag, and utility output grew at a slower clip.
"Today's numbers were not too bad, all things considered. Moreover, they underscored that the domestic demand engine is still running at a decent speed, providing some counter-weight against the firming external headwinds," said Leif Lybecker Eskesen, HSBC Chief Economist for India & ASEAN. Though there are signs that the domestic growth momentum is "normalising" following the post-flood growth spurt, domestic demand should continue to be supported by the effect of minimum wage hikes and the loose fiscal stance. Moreover, interest rates are low both in nominal and real terms, and Bank of Thailand may even deliver another rate cut.
"Final domestic demand helped cushion against the drag from weaker exports, although there were some signs of "normalisation" following the post-flood rebound. However, domestic demand should remain well-supported in coming quarters," the economist said.
At the end of 2012, NESDB expected Thailand to show current account surplus of 0.8 per cent of gross domestic product (GDP), against 1.7 per cent in 2011. It is expected to slightly rise to 1 per cent in 2013.
"The Thai economy next year will resume the normal growth path, mainly thanks to domestic consumption which should further increase on investment from the public and private sectors. Global economic recovery would also boost the export sector," he said.
Capital flows, however, would pose a big challenge in 2013 and Thailand needs measures to boost short-term and long-term growth.
Akhom also expressed concerns for drought, the impact of higher minimum wage on labour-intensive industries, and the appreciation of the Thai baht. He noted that the baht could strengthen faster than expected due to quantitative easing measures in many countries. Oil prices could also rise faster than expected due to the excess liquidity and this could put pressure on inflation.
NESDB based its 2013 forecasts on the assumption that the global economy would grow 3.9 per cent, Dubai crude oil to move in the range of US$108-$113 per barrel against $109.5 in 2012, and the dollar-baht rate at 30-31. While export value should rise 4-5 per cent next year, the think tank expected a number of 22.5 million visitors next year or a 2.7 per cent increase from 21.9 million in 2012.
