As rainy season begins, prospects brighten

This offers the chance of better things to come for the economy, too, as the agriculture sector is expected to improve gradually.
The worst drought in two decades has certainly hit the economy hard. Real agricultural output fell by 4.2 per cent last year and shaved about 0.3 percentage point off growth in gross domestic product.
Farm income from major crops plunged 10.5 per cent in nominal terms.
To make ends meet, some farming households have had to borrow more, raising the overall debt-servicing burden.
According to the National Statistical Office, average household debt in the drier regions increased by 3.0 per cent in the North and 3.8 per cent in the Northeast from 2013 to 2015, compared with the national average of a 1.9-per-cent decline.
The implications for the economy? Plenty. Remember that the agriculture sector’s share of employment is a chunky 32 per cent and private consumption accounts for a hefty 52 per cent of the economy.
So it’s no surprise that high leverage and shaky confidence in the rural community have been a significant drag on consumer spending, with repercussions for the rest of the economy in terms of reduced retail sales, industrial orders and more.
Apart from tourism and state spending, most of the other economic barometers still point to a tepid recovery, including corporate loan growth and manufacturing production.
Given weak global demand, it is also unlikely that we will get much help from the export sector.
As the economy remains stuck in low gear, this vicious cycle could dampen consumer confidence further and drag down consumption with it.
Breaking out of this cycle will require additional fiscal stimulus.
The extension of tax measures to boost investment is one recent example, but more action may be needed to maintain growth momentum and private-sector confidence.
The government also needs to accelerate infrastructure spending to attract investment from the business community.
More rain would help too, by pushing up agricultural output.
While farm income is likely to remain subdued in the medium term because of drought-damaged land and low inventories, there’s a chance the worst is behind us.
The Meteorological Department reported in April that rainfall is expected to return to normal levels between June and September.
There is, however, one other weather concern. A report on May 24 by the Australian Bureau of Meteorology put the chance of La Nina developing in the tropical Pacific Ocean later this year at 50 per cent.
Possible effects include more frequent storms, which could hurt crop production, and floods, which could lead to home-renovation costs and the temporary displacement of rural households.
Despite this cloud on the horizon, we believe the outlook for Thailand’s economy is starting to look a little brighter.
Our current forecast for GDP growth in 2016 is 3.0 per cent, above last year’s 2.8 per cent.
Looking ahead, we will continue to monitor external events that may affect our economy, such as the monetary-policy decisions by the Bank of Japan and the US Federal Reserve this month, and the condition of China’s financial markets and economy.

Nalin Chutchotitham is HSBC’s Thailand economist.