WB cuts growth forecast to 4%

The World Bank said it might revise Thailand’s economic growth forecast again this year, pending the progress of economic recoveries in developed economies and China. 

The announcement accompanied the bank’s downgrades yesterday of its forecast for the economic growth rates of Thailand and the rest of Asia-Pacific, chiefly due to the slow recovery in developed economies and the slower growth in China. 

Thailand’s gross domestic product forecasts for 2013 and 2014 were slashed to 4 per cent and 4.5 per cent, from 5.3 per cent and 5 per cent in the April forecast. 

“Another revision could take place later this year, much depending on the recovery in the global economy and China. It remains to be seen how much household consumption will decline in the last four months of the year and if the decline would be smaller than expected,” said Kirida Bhaopichitr, World Bank Thailand economist.

She attributed this month’s downward revision to lower-than-expected exports in the first half. Domestic consumption has dropped while investment shows small growth. However, the growth rate would be higher next year thanks to the global recovery as well as the implementation of government infrastructure projects.

The World Bank is convinced that Thailand’s exports would increase by only 2.4 per cent this year, against the Commerce Ministry’s 4-per-cent target. But as imports will expand only 4.5 per cent, Thailand should maintain a trade surplus this year. The bank foresees export growth of over 5 per cent. 

The global economy and China are the biggest risk factors for the Thai economy particularly the export sector, she said. Next is capital flow, which leads to volatility in foreign exchange rates and negative impacts on exports. Next year’s growth may also be impacted by the high household debt level, as this will put pressure on household spending. Another risk factor is a delay in government projects. 

“If the Thai economy falls under all four factors, the growth rate in this and next year might not be as high as we expect,” she said.

Government projects could also be delayed because of political instability. However, despite political changes, she believes that without the closure of roads, ports and airports, business would proceed as usual.

 

Rate hike warned 

In the East Asia and Pacific Economic Update entitled “Rebuilding Policy Buffers, Reinvigorating Growth”, the World Bank argued that economies should prepare for interest rate increases  as monetary policies will be normalised following the acceleration in global growth momentum. 

Some debtors in Thailand and Malaysia – where household debt levels exceed 60 per cent and 80 per cent of GDP, respectively – may find it harder to service debts.

The World Bank expects economies of developing East Asia and Pacific  grow at 7.1 per cent this year, down from 7.5 per cent last year. While the pace of growth is slowing, the region will continue to contribute 40 per cent of global growth and one-third of global trade this year.

China’s growth is moderating as the country rebalances to pursue a more sustainable growth path. This year, it is expected to meet the official indicative growth target of 7.5 per cent. In the medium term, China’s growth is expected to remain between 7.5 and 7.7 per cent.”

Excluding China, growth in developing East Asia is expected to slow from 6.2 per cent last year to 5.2 per cent this year, before rebounding to 5.3 per cent next year and 5.7 per cent in 2015.

As higher global interest rates are likely to affect investment, accelerating growth and poverty reduction depends critically on structural reforms. Meanwhile, countries need to improve their investment climate and invest more in infrastructure, while making public investment more efficient.

They also need to address fiscal risks and create space to support long-term growth, with measures including reducing energy subsidies.