By The Nation
The economy should expand by 5.2 per cent next year as public investment projects are expected to become a key engine of growth, the International Monetary Fund said yesterday.
Growth in gross domestic product this year is projected to slow to 3.1 per cent. With growth driven by domestic demand, the current account is expected to run a small deficit of 0.2 per cent of GDP next year.
Hundreds of billions of baht were expected to be invested this year under the Bt2-trillion infrastructure and Bt350-billion water-management projects.
The Bank of Thailand forecasts 2013-2014 growth at 3.7 per cent and 4.8 per cent, respectively.
"Risks to the outlook are tilted to the downside, dominated by external factors," the IMF said in the conclusion of the annual review, the Article IV consultation with Thailand, dated September 20.
Authorities were urged to persevere in their efforts to rebuild fiscal buffers, strengthen financial stability and promote more inclusive growth.
"Directors considered that a gradual return to fiscal consolidation will broaden the room for policy manoeuvring over the medium term and create space for priority spending." The IMF directors supported expanding investment in infrastructure and education, and replacing generalised subsidies with targeted income support for vulnerable groups.
The Thai government in the 2013 fiscal year reported a budget deficit of 3.4 per cent of GDP, against 2.6 per cent in 2012. The IMF projects Thailand’s public debt to reach 47.2 per cent of GDP by the end of this year, from 45.4 per cent in 2012. The ratio of external debt to GDP will also rise from 36.4 per cent to 41.4 per cent.
In its report for October released yesterday, the Bank of Thailand’s Monetary Policy Committee assessed that next year, the economy would gradually gain momentum, thanks to the export sector taking on a greater role consistent with the pick-up in trading partners’ economic outlook.
Moreover, the slowdown in private consumption, which had put a drag on the economy, is likely to improve, the report said. In addition, private investment is expected to increase with the continuation of previously planned investments and those related to the government’s large-scale investment projects.
"Nonetheless, Thai economic growth in 2014 was projected to be lower than the previous projection (5 per cent), due to adverse knock-on effects from delayed export recovery on private consumption and investment which would continue into 2014," the MPC said.
According to the IMF, the expiration of the first-car-buyer scheme appears to have had a larger-than-expected impact on private consumption, while exports were adversely affected by a slowdown in external demand.
The external environment remains challenging and domestic tailwinds are weakening. Credit growth remains strong, but has decelerated in recent months. The stock-market rally has fizzled since May, even as housing price growth continues. Business sentiment remains robust while consumer confidence has weakened.
External risks deriving from an escalation of the euro-area crisis or fiscal-policy shocks in the United States have diminished, but are still skewed to the downside. Slower-than-expected growth in major emerging economies, particularly China, would also have a considerable impact because of trade linkages.
The unwinding of monetary-policy stimulus in the United States may trigger further capital flow reversal from emerging markets. Domestically, the impact of the unwinding of various government policies on private consumption may be larger than anticipated. Finally, political stability has strengthened, but remains a downside risk.
The IMF executive directors noted that skilful macroeconomic management, as well as the strong fundamentals of the Thai economy – including low inflation, healthy balance sheets of commercial banks and corporations, high international reserves and a moderate level of public debt – had blunted the impact of recent severe shocks and was underpinning a recovery.
The IMF directors said the currently accommodative monetary-policy stance is appropriate but authorities should stand ready to normalise the policy stance if inflationary pressures re-emerge.
Thailand’s strong international-reserve position, together with exchange-rate flexibility and macro-prudential and capital flow measures as appropriate, will help address such volatility. As of November 1, Thailand’s reserves stood at US$171.5 billion (Bt5.42 trillion). Gross reserves including forward positions are expected to end the year at $211.7 billion.
The IMF directors welcomed the progress in developing the non-bank financial industry as well as the authorities’ aim to promote more inclusive growth. Highlighting the need to enhance labour productivity, they endorsed plans to boost workers’ skills to address skill mismatches and labour shortages.
They also supported plans to expand infrastructure to lower transport costs, promote commerce and boost long-term growth.