Spending set to spur growth

However, the country should be cautious of further global economic and domestic political crises.

Domestic and external economic drivers are likely to get better after weakening substantially in 2014, for several reasons, KResearch says. 

First, the government is speeding up its spending and launching economic stimulus measures, which are starting to bear fruit. In particular, state investment is expected to increase considerably in 2015 after the postponements of last year. Investment in infrastructure projects will go forward. However, the government’s insistence on scrutinising some projects to prevent corruption may cause public spending to miss the target. 

Business investment will play an important role in driving the economy. After being sluggish for a long time, private investment could grow significantly, by 6-8 per cent. State infrastructure projects will induce private investment and may support growth of urbanisation with the onset of the Asean Economic Community at the end of the year. 

In addition, speedy approval of projects by the Board of Investment should boost business investments significantly, including those by small and medium-sized enterprises.

Household spending may return to a more normal situation, with projected growth of 2.7-3.7 per cent in 2015 after unusual weakness over the past two years. Supporting factors are favourable conditions of employment and non-farm income, as well as measures to help farmers and low-income earners. Nonetheless, low crop prices and high household debt will limit spending growth, especially in rural areas.

KResearch expects exports to expand gradually by 2-4 per cent in 2015, compared with no growth in 2014, backed by a moderate global recovery and the dynamic growth of neighbouring economies. However, Thailand’s export sector may be have trouble competing with some of those same regional neighbours. 

Tourism may recover further but not as strongly as seen in the past several years.

Thailand’s accommodative monetary policy may still be one of tools to nurture the economic recovery. In spite of pressure from an upward trend of US interest rates, the central bank’s Monetary Policy Committee has noted that the plunge in global oil prices will sharply lower inflation despite cuts in domestic subsidies on energy prices and the impacts of a weaker baht on import costs. Therefore, the MPC is likely to keep the policy rate unchanged at 2 per cent. 

 

Policy-rate cut

However, if the global and Thai economies become weaker than expected, low inflation will pave the way for a policy-rate cut. 

The baht may be volatile with a downward bias in line with appreciation of the US dollar as a result of promising economic prospects in the United States. While other major economies are likely to increase monetary easing, the US is set to move in the opposite direction and increase interest rates. 

However, sound fundamentals of the Thai economy may restrain the weakening of the baht. In any case, its volatility is inevitable because several uncertainties remain, especially core countries’ changes in their monetary policies and the domestic political situation, which may periodically cause an abrupt change in capital flows.

KResearch identifies three major themes that will have significant impacts on Thailand’s economic movements, financial markets and monetary policy. 

First, diverging economic conditions and monetary policies among the world’s core countries will affect economies in emerging markets, including Thailand. Their monetary policies and capital flows will determine exchange rates and asset prices. 

Second, plummeting global oil prices will lend support to a global economic recovery led by oil-importing countries such as Thailand.

The third major theme is the domestic political situation, including the drafting of a new constitution and political, economic and social reforms mandated by the military regime. Even though the coming regulatory changes may raise concerns for some business sectors, the significant political changes this year may provide hope for turning the crisis into opportunities by getting rid of hindrances and reinforcing the growth potential of the Thai economy.