GDP growth could be dragged down to 3 per cent, FPO says
Thai exports could shrink this year and face further difficulty next year, while inflation could come in lower than expected – or even tip over into deflation – if the political turbulence eats away at the confidence of foreign traders and domestic consumers, the Commerce Ministry said yesterday.
Meanwhile an economist and a top banker said the escalating tension could pull down this year’s economic growth to just 3 per cent or even less, from 3.7 per cent forecast just recently.
To raise overseas traders’ confidence, the ministry has instructed its trade counsellors to explain to them as a matter of urgency that the current political problems will not affect the trading and manufacturing sectors.
The government also plans to explain the political situation to ministers from countries around the globe during the upcoming World Trade Organisation summit from December 3-6 in Bali. Commerce Minister Niwatthumrong Boonsongpaisan will represent the government at the summit.
Srirat Rastapana, director-general of the Commerce Ministry, said exports this year could contract – compared with the previous projection of 1-per-cent growth – because of both internal and external problems.
“Traders could lose the confidence to order goods from Thailand if the political mess is prolonged. So far, some overseas traders have started to ask about the situation in Thailand and questioned whether exporters will face shipment problems,” she said. In the first nine months of the year, exports grew by just 0.05 per cent. The ministry will today announce the export figures for October and the first 10 months.
Besides instructing trade counsellors to reassure major overseas traders, she said it was hoped that Thailand would find a solution to the political conflict soon so that the impact of the crisis could be minimised.
However, Srirat expressed concern that if the situation were to be prolonged, it would affect Thai shipments next year, which are currently targeted to expand by 5 per cent.
The ministry’s projection is based on assumptions about key factors such as the exchange rate, global growth and oil prices, as well as internal political stability.
Another potential effect of an extended crisis, she warned, was that the Consumer Price Index could soon fall, or even enter a period of deflation, as the public would lose the confidence to spend amid the turbulence. In the first 10 months of the year, inflation came in at 2.27 per cent, within the ministry’s projected range of 2.1-2.6 per cent.
However, in October alone, year-on-year inflation was just 1.46 per cent.
Meanwhile, foreign-exchange traders said that after anti-government mobs occupied official buildings on Monday and Prime Minister Yingluck Shinawatra broadened the Internal Security Act to cover much of Greater Bangkok, the baht had weakened to exceed 32 against the US dollar, as investors became more concerned that political unrest would be prolonged. The baht had already depreciated for six days.
Foreign investors yesterday sold Bt5.23 billion worth of bonds, as well as Bt1.45 billion worth of stocks. Such moves have also had an impact on the baht. The Thai currency opened yesterday at 32.05-32.07 before weakening to Bt32.10. By 4.30pm, it had appreciated slightly to 31.99-32.00. Traders on the Stock Exchange of Thailand, meanwhile, seemed unfazed by the latest political developments. The SET Index rose 0.43 per cent to close at 1,358.69.
Impact on budgeted expenditures
However, Ekniti Nitithanprapas, deputy director-general of the Finance Ministry’s Fiscal Policy Office (FPO), said that if the occupation of key state agencies’ buildings were to last more than a couple of weeks, it could hurt the economy, especially in the current quarter. The occupation could have some impact on budgeted state expenditures.
For the current fourth quarter of the calendar year, the FPO set a target of disbursing at least 27-28 per cent of the government’s total budget for the 2014 fiscal year. So far 15 per cent of the budget has been spent. If the government fails to reach the target, the economy in this quarter is unlikely to expand much from the third quarter. If so, gross domestic product might end the year with growth of only 3 per cent, down from 3.7 per cent recently forecast by the FPO.
The office will revise its GDP growth forecast again next month by taking into account the political instability, the upcoming October export data, and some tourism data.
Ekniti made the remarks yesterday at the seventh ThaiPublica Forum on the topic “The Thai Economy and Long Sustainable Growth …?” Korbsak Phutrakul, executive vice president of Bangkok Bank, said at the same forum that the political situation had already severely affected the economy. If it drags on much longer, GDP growth might be lower than 3 per cent this year and less than 4 per cent next year. In the past, similar political turmoil lowered growth by 1-1.5 percentage points, he said.