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Thai economy to drag down regional growth

Mar 31. 2016
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AFTER the Thai economy chalked up growth of 2.8 per cent last year, it is expected to pick up the pace to 3 per cent this year and 3.5 per cent next year, according to the Asian Development Bank.
However, achieving these milestones depends to a great extent on the government rolling out its planned infrastructure investment of Bt1.8 trillion from this year through 2022.
“Growth is forecast to rise over the next two years, assuming that substantial public infrastructure investments proceed on schedule and the political climate is calm around national elections proposed for the second half of 2017,” the ADB said in its “Asian Development Outlook 2016” report released yesterday.
The infrastructure investment is expected to lift business confidence and private investment, while exports will remain weak. 
Private consumption is expected to increase modestly in 2016 but then speed up next year, thanks mainly to stimulus measures.
Risks to the outlook include a worsening of the drought, which would hit incomes, private consumption and exports. 
The bank forecasts rice production in major exporting countries – India, Pakistan, Thailand and Vietnam – to drop by 3.4 per cent this year because of drought. 
Slower-than-anticipated growth in major trading partners and volatile global capital flows pose external risks, but this would be mitigated by sizeable current-account surpluses, relatively low external debt and substantial international reserves.
“The timely implementation of government investment projects is crucial. Delays would reduce public investment and damage consumer and business confidence alike,” it said. 
Among Asean growth forecasts, Thailand is higher than Singapore’s 2 per cent this year and 2.2 per cent in 2017 as well as Brunei's 1 per cent in 2016. Myanmar will show the highest growth rates at 8.4 and 8.3 per cent, allowing the region to show average growth of 4.5 and 4.8 per cent in these two years. 
From 2008-14, Thailand suffered a significant decline in its potential growth rate, which is the lowest in Southeast Asia. In 2015, growth slowed in seven of the 10 Asean economies including Thailand, edging down the regional average to 4.4 per cent. 
The region is expected to reverse its growth slowdown in 2016-17. Infrastructure investment is seen as boosting growth in Indonesia, while Myanmar rebounds from devastating floods in 2015. Malaysia faces another year of decelerating growth. 
The bank forecasts growth of 5.7 per cent for all developing economies in Asia in 2016 and 2017, just as the United States and the euro area show sluggish growth and China undergoes a major economic transition. 
China’s slowdown could cut both global and regional growth by nearly 1.8 percentage points.
Global headwinds notwithstanding, developing Asia will continue to contribute 60 per cent of world growth. 
The impact in the region would be mainly on trade volumes and commodity prices. 
Without structural reform, potential growth in many countries in the region will slide further because of unfavourable demographics, convergence with advanced economies and spillover from growth moderation in China. From 2008-14, average potential growth of developing Asia declined by 2 percentage points from its historical trend. 

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