Political chaos takes most blame for this year's slump, analysts agree

On top of that, the imposition of martial law led insurers to deny travel insurance. 

These are just some of the effects of the political side on the Thai economy in 2014.

The Fiscal Policy Office (FPO) expects gross domestic product this year to post growth of 1.2-1.7 per cent. The National Economic and Social Development Board (NESDB) expects only 1-per-cent GDP growth, lower than last year’s 2.9 per cent and below the average annual growth rate of around 3.68 per cent since 1994. 

The FPO and the Bank of Thailand’s Monetary Policy Committee (MPC) agree that the main reasons for the sluggish economy are related to the political situation in the first half.

“The Bank of Thailand’s 1.5-per-cent [GDP growth] projection for the whole year might seem low, but we have to consider that this is the result of the political turmoil in the first half of the year,” MPC secretary Paiboon Kittisrikangwan said in August.

According to FPO data, the Consumer Confidence Index was at 64.9 (100 indicating full confidence) in the last quarter of 2013 and dropped to 59.9 in the first quarter of 2014 before bouncing back up to 69.3 in the third quarter and 69.9 in October. 

The NESDB said that in the first nine months of 2014, private expenditure contracted by 0.2 per cent but bounced back to expand by 2.2 per cent in the third quarter.

The FPO said import of capital goods dropped from 3.7-per-cent year-on-year expansion in the first quarter of 2013 to a 14.1-per-cent decline in the first quarter of 2014 before flattening out in the third quarter and increasing by 8 per cent in October. 

The NESDB said total investment grew by 2.9 per cent in the third quarter, much better than the average for the first nine months of 2014, which posted a contraction of 4.5 per cent, with a 7.8-per-cent contraction in public investment and a 3.6-per-cent contraction in private investment.

All in all, domestic demand and private investments seem to have picked up, for now.

While the Asian Development Bank (ADB) and the World Bank Group agree that the prolonged political turbulence was partly to blame for the weakness of the Thai economy, they blame other factors as well. 

The export sector suffers structural problems due to the lack of research and development and innovation, which led to lower competitiveness in some products. Declines in global crop prices led by excess supplies due to the sluggish global economy hurt the Thai agricultural sector. The Kingdom’s ageing society led to shortages of labour, while populist policies such as the first-car tax incentives contributed to high household debt, posing a strain on consumption.

“Structural change in global consumer demand means that the country’s export sector needs time to think where we will [fit] into this new global production and value chain. We have to innovate,” Luxmon Attapich, the ADB’s senior country economist for Thailand, said in November.

In its latest prediction, the BOT expects exports of merchandise to be flat this year.

As for the tourism sector, Prime Minister General Prayut Chan-o-cha believes that the number of inbound travellers this year will end up at around 25 million. While this is below the 26.7 million seen in 2013, he denied that martial law had affected the tourism sector, choosing to blame the political situation at the beginning of the year instead.

“I do not know how there can be 25 million inbound tourists this year when virtually nobody visited here at the beginning of the year, and some people are still claiming that some law is preventing people from visiting the country,” Prayut said recently. 

Most inbound tourists from January to November were from China despite the slowdown of this tourist group at the beginning of the year. Their numbers increased substantially after the military’s ruling National Council for Peace and Order approved a visa-fee exemption for them in August.

About 18.82 per cent of the 21.94 million foreigners who visited Thailand between January and November were from China, while 26.58 per cent were from the Asean countries and 24.55 per cent from the euro zone.

Despite fears that the number of tourists from Russia (which provided the biggest portion of European tourists at 6.6 per cent in 2013) might drop because of the decline in its economy, that number between January and November was 1,419,561, almost the same as the 1,492,943 during the same period last year, according to the Tourism Department.

Overall, the latest economic slump seems to be due to the slower-than-expected government spending and the delay in the government stimulus package. This was admitted by the deputy prime minister in charge of the economy, MR Pridiyathorn Devakula, himself.

“Has the stimulus package produced any effect? My answer is not yet, and it is slower than what I expected,” he said last month.  

BOT Assistant Governor Mathee Supapongse noted after the MPC meeting of December 17: “Less-than-expected government spending weighs on private investment, as most businesses await the implementation of public investment plans. In addition, a recovery in exports of goods is subject to the more uncertain global economic outlook.” 

 

Inflation rate

With fuel prices expected to remain low and goods prices stable in 2015, the Commerce Ministry projects inflation in the range of 1.8-2.5 per cent, compared with 2-2.8 per cent this year.

The ministry reported that the Consumer Price Index in the first 11 months of 2014 grew 2.02 per cent year on year. 

 

Trade balance 

The ministry expects exports this year to contract by 0.1 per cent or post only flat growth, after the total value of shipments in the first 11 months dropped 0.42 per cent year on year to US$209.18 billion (Bt6.89 trillion). In the same period, imports saw an 8.99-per-cent slide to $210.75 billion. Thailand locked in a trade deficit of $1.56 billion.

The Commerce Ministry targets export growth of 4 per cent to $236 billion in 2015, while the Bank of Thailand predicts only 1-per-cent growth in the new year.