Key moves could get the economy firing again

The economy has been surviving solely on the sluggish recovery of the export sector ever since martial law was declared. The violence that escalated at the beginning of last month has dashed any hope for sizeable contributions from the tourism industry and foreign investment.

While exports and tourism will continue to play a part, the junta’s urgent plan of simulating the economy through increasing domestic consumption via payment for farmers and the setting up of a fiscal budget for 2015 will definitely shine some light on future investment.

The slow-growth policy in China has contributed to the slow recovery of Thai exports, while the country’s growth is still largely dependent on the apparent recovery of the United States and major markets in the Europe Union.

The Commerce Ministry recently revealed that exports contracted by 0.9 per cent in April and by 3.1 per cent in March.

Exports in the first four months of this year shrank by 1.0 per cent from the same period last year to US$73.46 billion, but the Commerce Ministry has continued to hold to its export growth target of 3.5 per cent this year, which is an adjustment from the target of 5 per cent from early this year. 

The tourism industry will definitely get a hit from the coup via the slowdown of inbound tourists who cannot get travel insurance and businessmen who decided to hold their meetings elsewhere.

However, despite 53 countries having issued travel warnings, the Tourism Council of Thailand still expects the country to earn at least Bt1.9 trillion from tourists this year, which suggests the industry believes it will continue to help drive the economy.

Domestic confidence in consumption and investment has been going downhill since the beginning of the year due to the economic and political uncertainty.

The University of the Thai Chamber of Commerce (UTCC) revealed that the consumer confidence index in April slid to its lowest point in 12-and-a-half years, while the Federation of Thai Industries (FTI) reported last week that industrial confidence has also continued to plunge. The Thai Industries Sentiment Index is at its lowest level in 58 months since July 2009. 

There has been some talk about recession, mainly from the UTCC and FTI, before the military decided to seize control via a putsch.

Thanavat Phonvichai, director of the UTCC, said early last month that “if both quarters in the first half of the year are negative, the chance for a year-on-year recession is more apparent”, while Supant Mongkolsuthree, chairman of the FTI, said recently that if there is another round of violence, “the country’s economy will struggle to remain growing”.

Nevertheless, despite the suspension of rights and freedom, the takeover of power might see a military-style handling of economic policy, which can sweep aside red tape. It may be able to jumpstart the economy through their hard-handed approach.

The best example is the two days it took them to push through Bt92 billion as payment to rice farmers.

The junta’s economic chief, Air Chief Marshal Prajin Juntong, expects the payment for farmers to increase gross domestic product by 0.2 per cent. Their clear indication to meet the deadline for completing the 2015 budget will also boost the confidence of domestic and foreign investors.

The junta expects to come up with an economic roadmap by July 1, and part of its short-term plan is to continue with some of the Bt350 billion in water management projects, mainly for flood prevention, and some of the Bt2 trillion in infrastructure projects, mainly the double-track railway and new train lines in Bangkok. 

These indications will show foreign and domestic investors where the country is heading in terms of investment and thus help boost much needed confidence for investors as there is now some certainty things will get done.

“The economic certainty provided by the setting up of the 2015 government budget will increase investor confidence, especially for domestic investors,” Methee Supapong, senior director of economic and financial policy at the Bank of Thailand, said.

Many investors and consumers have been holding off from spending money due to the uncertainty and since there is no problem of cashflow, it is expected that domestic investment and consumption will pick up by the second half of this year once there is a clearer and more detailed roadmap from the junta.

“Thailand does not have a problem of purchasing power and people along with investors have been holding onto their savings and they are ready to spend it as soon as the political uncertainty is gone,” Kobsak Pootrakool, executive vice president of Bangkok Bank, said.