THAILAND will trail all Asean countries in growth because its open economy and export dependence leave it directly exposed to the global and Chinese slowdowns, according to the World Bank.
Thai gross domestic product this year is expected to grow by 2.5 per cent, while the East Asia-Pacific region is expected to race ahead by 6.5 per cent this year, 6.4 per cent next year and 6.3 per cent in 2017. This is down from 6.8-per-cent actual growth last year.
Among the large Asean economies, growth conditions will be most buoyant in the Philippines and Vietnam. In Indonesia and Malaysia, the outlook for business profits and household incomes is clouded by weak global commodity prices. In Thailand, uncertainty and economic vulnerabilities will continue to weigh on growth.
Most of the smaller economies will see stable or slower growth this year before picking up again.
Thailand’s GDP is predicted to grow by 2 per cent next year and 2.4 per cent in 2017. This is down from expected growth of 2.5 per cent this year because China’s slowdown continues to pressure Thailand’s export sector.
Thailand’s outbound shipments will increase by 0.8 per cent this year, 1.7 per cent next year and 1.3 per cent in 2017.
Shabih Mohib, programme leader on equitable growth, finance and institutions in East Asia and the Pacific, said yesterday that the World Bank was not confident that the Thai government’s spending on infrastructure projects would be tangible next year.
The economic stimulus packages launched recently are also short-term, he said. Outdated technologies make products from Thailand unable to meet global market demand, so Thailand should emphasise technology development together with manpower efficiency and infrastructure investment, he said.
“Thailand will turn to meet healthy growth in the future based on three key points. First, the integration of the Thai economy to comply with the global economy to help benefit trading and exports.
“Second, technology and innovation development, and finally, the integration of the Thai economy through infrastructure investment,” he said. Sudhir Shetty, chief World Bank economist for the East Asia and Pacific region, said: “Developing East Asia’s growth is expected to slow because of China’s economic rebalancing and the pace of the expected normalisation of US policy interest rates.
“These factors could generate financial volatility in the short term, but are necessary adjustments for sustainable growth in the long term.” The baseline growth projections for China assume a further gradual slowdown in 2016-17. If China’s growth were to slow more than expected, the effects would be felt in the rest of the region through both trade and financial channels, the World Bank says.
The key trade effects will be mediated through developments in commodity prices, exports of non-commodity merchandise to China and receipts from Chinese tourists. Financial spillovers will arise through a decline in outward foreign direct investment from China and an increase in volatility.
Thailand’s SCB Economic Intelligence Centre also notes that China’s slowing is an ongoing structural shift that will cast a lasting shadow on the Thai economy.
The slowing external demand prompted the EIC to cut its forecasts for Thailand’s GDP growth this year to 2.0-2.5 per cent from 3 per cent. It projects Thailand’s GDP growth next year at 2.5-3.0 per cent.
Thailand’s exports are being dragged down by the decline in China’s investment spending on property and manufacturing capacity, which reduces demand for industrial products and commodities.
Thai exports to Asean nations are suffering from lower demand due to depreciation of their currencies and the region’s economic reliance on shipments to China.
Tourism and government stimulus measures will be the Thai economy’s main drivers next year, the EIC believes.
Capital outflows are a key risk to the Thai economy in the near term.
The slowdown in China and the prospect of the US Federal Reserve’s first interest-rate increase in nearly 10 years have roiled financial and capital markets, marked by the flight of capital from emerging markets. This has dragged down the currencies of Asean nations and lowered their foreign-exchange reserves relative to foreign debts, potentially leading to a crisis, the research housed of Siam Commercial Bank said.
Thai businesses should keep a close watch on risks in neighbouring countries. As for Thailand’s own stability, there is little risk of either severe capital outflows or sharp depreciation of the baht.
This should facilitate the Bank of Thailand’s accommodative monetary policy by allowing interest rates to remain low, the EIC said.