MPC to further trim growth forecast in June

Paiboon Kittisrikangwan, secretary of the Monetary Policy Committee (MPC), said at its meeting yesterday that prolonged political uncertainty had contributed to a slump in domestic consumption, investment and tourism, which led the committee to believe that the country’s gross domestic product this year will expand by less than it had previously assessed.

The MPC has already announced one cut this year in its GDP growth forecast. This came at its previous meeting in March, when it slashed the forecast from 4.8 per cent to 2.7 per cent.

Another cut at the June meeting will be the second time it has had to revise its prediction downwards due to the country’s political turmoil.

Paiboon said data for the first two months of the year had indicated that growth of the first quarter would be lower than expected, and that – when compared to the final quarter of last year – growth was most likely to be in negative territory.

“Growth from quarter to quarter is most likely to be in deficit, and the numbers from January and February are lower than expected,” he said, adding, “There is a possibility that growth from quarter one to quarter two will also be negative, due to many factors.” 

Paiboon said he did not, however, believe there would be an economic recession this year, thanks to an improvement in the country’s goods exports, which have been boosted by the global economic recovery.

But, he said he did not know when the Thai economy would start recovering, since it was hard to predict when the political conflict would end. 

“No one can tell whether we have already passed the lowest point of the economy this year, since there are many uncertainties, but the recovery of major economies should continue to improve the export sector while the condition of the tourism industry cannot get any worse than this,” said the MPC secretary.

Meanwhile, at the same meeting, Paiboon announced that the MPC had voted six to one in favour of maintaining the policy interest rate at 2 per cent, since the economic and political picture was still largely unclear. 

He said the current slump in domestic consumption and investment, which had led to the economic slowdown, was not related to matters such as a lack of liquidity or higher production costs, as it stemmed from a lack of confidence caused by prolonged political uncertainty.

“Operators said the number-one factor hindering their ability to do business is political and economic uncertainty, more than changes in the interest rate or a lack of access to finance, which is one of the least of their concerns,” he explained.

When asked whether the MPC would consider lowering the benchmark interest rate again this year, Paiboon said that while the policy space continued to be smaller from inflationary pressure, there were many factors to consider when making changes in monetary policy. 

The committee will, therefore, continue to monitor the situation very closely and make sure that the policy stance continues to support the economy, he added.

Gundy Cahyadi, group research economist at DBS Bank, said it was no surprise that the central bank had decided to maintain the policy rate at yesterday’s MPC meeting, but its indication that this year’s GDP growth may be even lower than previous forecast could trigger some reaction in the markets.

He also questioned whether export growth would be enough to sustain the economy this year.

“Export growth still looks decent and it is helping to hold up the economy, but for how long will this be sustained – and one wonders if operators can continue to have business as usual without a functioning government in place,” said Gundy.