'Thai economy can weather row but external factors still risks'

The World Bank expects the Thai economy to cope with the local political developments, while risks remain for this and other East Asian countries, with currency volatility from foreign capital movement in the short term and high public debts in the long term. 

“Each country differs in politics,” said Ulrich Zachau, World Bank director for Southeast Asia. “The Thai political situation is not a major risk now, given political protest as democratic action. In the past, despite political protests, the private sector remained strong, dealt with the political situation and helped drive the economy. This time, Thai people will likely cope with the problem, which will pass.” 

It is normal for political protests to take place in all countries across the world, but stability and investment will help economic expansion and further investment, he said. 

Speaking at Krungthep Turakij’s seminar on “Thailand Economic Outlook 2014” yesterday, Zachau said he expected Thailand’s gross domestic product to grow by 4 per cent this year and 4.5 per cent next year on foreign capital investment and East Asia’s recovery after the last crisis.

He projected slow global economic expansion, which is forecast at 2.3 per cent this year and 3.1 per cent next year. Global GDP growth in 2015 is projected at 4.4 per cent. Asia is forecast to see higher and faster growth than in other parts of the world. East Asia is expected to expand 7.3 per cent this year, with China’s estimated GDP growth at 7.5 per cent. 

After the crisis, East Asia drew foreign capital of about US$200 billion (Bt6.3 trillion) per annum, with China receiving the highest share at 30 per cent. 

The Asean Economic Community, which will take shape in 2015, will also help boost regional growth with its combined population of about 600 million.  

However, risks remain in the short and long terms. In the short term, more foreign capital flowed into East Asia with volatility. After the last crisis until 2012, about $500 million in capital poured into bond markets every week on average.

In Zachau’s observation, foreign capital inflow dropped sharply in September, with outflow of $100 million after information on the US Federal Reserve’s likely reduction of its quantitative easing (QE) programme and the temporary US government shutdown. 

In the long term, Zachau said risks in Southeast Asia could arise from household and private-sector debts. Malaysia’s household debts stood at 80 per cent of GDP and Thailand’s at more than 77 per cent. China’s debts inside and outside the financial sector remained above 100 per cent of GDP.

Zachau conceded that Thailand’s household debts remained high and should be watched. However, the Bank of Thailand and the Ministry of Finance were monitoring the situation.

“Thai household debt is high but comes from people’s consumption and spending that could drive the country’s economy,” he said. 

For East Asia as a whole, he cited high income disparity as a long-term challenge for several countries, particularly China and the Philippines. 

On Thailand, he said: “An important question is, how will Thailand be able to follow South Korea, Taiwan and [mainland] China? And this question will go back to policy-makers.” 

Although Thailand has witnessed a reduction in poverty, with 10 per cent of its population below the poverty line in 2010, income inequality remained high that year relative to other East Asian countries, he said. 

To deal with this problem while helping all segments of the country’s economy to expand at high rates in the long term, Zachau urged Thailand to improve education and labour skills, while energy imports should be lessened. 

“Thailand imports energy at twice [the rate of] China and three times Japan’s and South Korea’s. About 85 per cent of road transport depends on energy imports.” Zachau added that Thailand’s investment in transport infrastructure and mass transit would reduce energy imports. 

Finance Minister Kittiratt Na-Ranong said the Thai economy was expected to pick up from this fourth quarter onwards, driven by the government’s spending of Bt700 billion, coupled with the recovering global economy. 

He assured all that the government would be able to inject about Bt740 billion into the economy in the current quarter.

Kittiratt, who is also a deputy prime minister, said that next year the economies of many of Thailand’s trading partners were expected to expand, such as China, which is expected to report GDP growth of 7.7 per cent. The International Monetary Fund has forecast that the so-called CLMV economies (Cambodia, Laos, Myanmar and Vietnam) will grow by 6.6 per cent. This indicates that Thailand is in a positive economic environment, he said.

He added that the year 2015 would see massive investment in the Bt2-trillion transport-infrastructure development projects to boost economic growth.

Regarding the ongoing rally against the amnesty bill, he has asked all state economic agencies to keep a close watch on the situation as he is concerned that it could affect economic growth. But he believes that the situation will not severely hit the economy.

The Bank of Thailand expects the economy to stage a recovery next year, while warning that foreign capital could flow out of the country amid currency volatility due to the likely reduction of the US QE programme.

BOT director Roong Malikamas said the economy was expected recover but not sharply. The central bank projects GDP growth of 4.8 per cent next year.

Given likely slowing export growth after changing global market demand to technology-related products such as tablets and smartphones that Thailand does not produce, the country will not likely benefit much from the global economic recovery next year, she said.

She said the political factor played an important role for whose who had adopted a wait-and-see attitude for investment, while consumption might see some recovery next year. However, if the government accelerates its spending in the Bt2-trillion transport-infrastructure project, this could cause the economy to grow faster than expected, she said.