By Erich Parpart
The Bank of Thailand believes that export recovery will be slower than previously expected but still thinks the overall economy will return to its growth potential by next year.
Mathee Supapongse, senior director of the macroeconomic and monetary policy department of the BOT, said the central bank still believed that the export sector would continue to drive the economy. However, negative internal and external factors have slowed its recovery, which led the BOT to cut its export-growth prediction for 2014 from its March prediction of 4.5 per cent to the current projection of 3 per cent.
“The export recovery is slower than expected because the economic growth of Thailand’s main trading partners such as China, Japan and Asean has slowed. But export to the United States and European Union is still doing well,” he said.
Mathee said export to China had slowed because of the changes in Beijing’s economic policy, while in Japan, the government raised the value-added-tax rate in April, slowing demand for imported goods.
The changes in the world trade structure after the last global financial crisis have also contributed to the slowdown of the export recovery, since countries in Asia, including Thailand, have not gained much from the subsequent global recovery, he said. Alongside these factors, the falling prices of agriculture goods worldwide, especially rubber, rice and sugar, along with disease hitting the local shrimp industry have contributed to the slowdown of agricultural exports.
Internal factors have also contributed to the slow export recovery, including the political turmoil in the first half of the year. Changes in the production processes of ICT (information and communications technology) products such as hard disk drives also limited the country’s ability to absorb all the benefits from the global economic recovery.
All this along with the slumps in the tourism industry and the service sector because of the political turmoil along with constrained government spending, poor consumer and investor sentiment, and high household debt has contributed to the slowdown of economic growth in the first half of the year. But the BOT is expecting things to be better in the second half.
“In the period before the changes of the political situation, the BOT expected [gross domestic product] to expand by less than 1 per cent in 2014, but after the political changes, there are many factors that can boost the economy,” Mathee said.
He explained that the return of the government spending would stimulate the economy. The BOT believes the public sector will be able to disburse around 93 per cent of the 2014 budget, compared with its March prediction of 90.5 per cent, while the prediction for the disbursement of the fiscal 2015 budget has also increased from 90.4 per cent to 93.5 per cent.
Government projects such as water management and infrastructure development will lead the public-investment front with Bt7 billion worth of flood-prevention and canal projects this year and Bt5 billion worth in 2015 along with basic infrastructure projects such as railway double-tracking worth Bt20 billion in 2014 and Bt76 billion in 2015.
In terms of the private sector, Mathee said there was a possibility domestic consumption would recover quickly in the second half from the rapid return of confidence, but private investment would revive more gradually and would be more apparent next year.
The approval of delayed projects by the Board of Investment, lack of financial constraints, and appropriate interest rates will also contribute to the rise of investment in the second half, he added. The central bank’s current forecast for 2014 GDP growth is 1.5 per cent.
Next year, it foresees higher public spending and increased domestic consumption and business sentiment along with a more robust recovery of the export sector, which is expected to grow by 6.0 per cent. As a result, the BOT has raised its projection of 2015 GDP growth from 4.8 per cent to 5.5 per cent, which is in line with the country’s average potential annual growth of 5 per cent.
“The direction of the country’s economic growth is V-shaped [a sharp improvement following a sharp decline], and even though this year’s growth is lower than the actual potential of the country, it will not be for long and we will return to our true potential next year,” Mathee said.