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Public spending, consumption among key factors

Nov 19. 2013
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By Achara Deboonme
The Nation

As gross domestic product is likely to register growth of only 2.8-3.7 per cent this year, an improved outlook next year will hinge mainly on public spending as well as a recovery in domestic consumption and investment.
HSBC is now the house making the lowest GDP growth projection for 2013, at 2.8 per cent. The Bank of Thailand’s projection is the highest, at 3.7 per cent. DBS Bank expects economic growth to come in at 3.2 per cent this year against its previous forecast of 4 per cent, while Siam Commercial Bank puts the figure at 3.4 per cent. 
Data released on Monday by the National Economic and Social Development Board showed that the economy in the third quarter expanded by only 2.7 per cent year on year, following the 2.8 per cent recorded in the previous quarter. This was above the forecast of 2.5 per cent by Moody’s Analytics. The analysis arm of Moody’s Investors Service said high-frequency indicators suggested the domestic economy remained weak, while export-oriented industries were suffering from weak global demand.
“We expect Thailand’s GDP to expand by around 3.1 per cent in 2013, before stronger global demand in 2014 increases the pace to around 4.4 per cent,” it said. After the release of the third-quarter indicators, Gundy Cahyadi, an economist at DBS Bank, said the recent recovery in capacity utilisation had been encouraging but it was unlikely that export growth would return to double digits in 2014, still very tentative given the pace of the global economic recovery. Forecasting 4.5-per-cent growth for 2014, against its previous forecast of 5.2 per cent, DBS said public spending under the government’s transport-infrastructure mega-project would be a key.
“The government will remain in the limelight. Front-loading the delayed Bt2-trillion infrastructure projects in early 2014 is a key assumption to our forecast. Missing that, we may see sub-4-per-cent GDP growth [again] next year,” he said.
The NESDB’s data showed that net exports accounted for almost all the growth seen in the third quarter. Export growth ticked up slightly to 3.8 per cent year on year in the period, but the weakness in import growth was dominant. 
While there has been slight improvement in export demand, export growth remained lacklustre in the quarter. In fact, the important manufacturing sector registered its second consecutive negative growth at minus 0.4 per cent year on year.
While weak external demand was expected, Cahyadi found the sharp moderation in the domestic economy disconcerting. The slump in investment and private consumption growth was slightly more significant than that seen in the fourth quarter of 2011. 
Private consumption shrank 1.2 per cent year on year in the quarter, the first negative growth since the final quarter of 2011. Back then, the flood disaster caused the setback. This time around, financial-market volatility and household-debt overhang led to fast-eroding consumer confidence. 
“Further slippage in consumer confidence is really a concern going into 2014,” he said. SCB’s Economic Intelligence Centre noted that private and public investment in the third quarter contracted beyond expectation. While public investment contracted 3.3 per cent year on year against the 2-per-cent growth in the previous quarter, public spending dropped by 16.2 per cent after the 15.4-per-cent growth in the second quarter. 
Boosting the economy in the quarter was tourism income, which rose 25.5 per cent against 22.4-per-cent growth in the previous quarter.
“The quarterly contraction in public and private investment may lead the Thai economy to grow below our forecast of 3.4 per cent,” the house noted. It said annualised increases in public and private investment could be weaker than the forecasts of 2.9 per cent and 12.7 per cent respectively. 
“Notably, political risks are high, and this could affect the tourism industry in the fourth quarter. Foreign investment could also be affected, particularly if government projects are derailed because of political instability.”

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