Fiscal support to continue unabated this year

These measures, combined with various tax incentives, proved successful in boosting domestic demand in the fourth quarter of 2015 and the first quarter of this year. For example, the value of real-estate transactions surged by 29.7 per cent between November 2015 and this March thanks to a comprehensive stimulus package for the property sector.
Small public investment projects and the Bt5-million-per-district initiative also spurred demand for construction materials, which expanded for six consecutive months beginning in November, ending a six-month streak of declines.
On an aggregate basis, public spending became a major source of growth in recent quarters, especially in the fourth quarter of 2015 when big, fast and focused stimulus packages were introduced.
Public consumption accelerated by 4.8 per cent year on year in the fourth quarter and by 8.0 per cent in the first quarter of 2016, while public investment grew by 41.2 per cent year on year in the fourth quarter and 12.4 per cent in the next quarter.
Private consumption meanwhile rose at the fastest pace in almost three years in the fourth quarter (2.6 per cent year on year versus 1.8 per cent in the third quarter), as stimulus measures (that is, personal-income-tax deductions to boost spending in the final week of 2015) brought demand forward.
Despite some deceleration in the payback period of the first quarter of this year, consumption remained intact, growing by 2.3 per cent year on year. Private investment also broke into positive territory in the fourth quarter (up 1.9 per cent year on year versus a 10.1-per-cent contraction in the third), after shrinking for two consecutive quarters, and remained resilient in the first quarter with back-to-back improvement to 2.1 per cent year on year.
Fiscal support should remain solid in coming quarters as the remaining budgets of existing packages continues to be disbursed and new measures begin to take effect.
Based on our estimates, fiscal support should peak again in the second quarter as the government speeds up disbursement to mitigate the impact of drought.
The flagship measures introduced this year particularly focus on drought relief and rural development: Bt93 billion in drought-relief measures, Bt35 billion in the Bt500,000-per-village programme, and Bt15 billion in the Bt200,000-per-village initiative. These measures are expected to limit downside risks from drought and boost upcountry demand.
With upbeat first-quarter GDP growth, National Economic and |Social Development Board secretary-general Porametee Vimolsiri (who is also one of the seven members of the central bank’s Monetary Policy Committee) suggested that no further stimulus was required but wanted continued implementation of existing measures.
Farm income, which turned positive in April, will also lessen pressure to deliver more stimuli, in our view. Moreover, bids will be called for six infrastructure projects worth a combined Bt320 billion this month or in July. Hence disbursement of these mega-projects in the second half will help compensate for the dissipating impact of short-term measures.
Despite its remarkable boost to the economy, fiscal impetus is no panacea. The stimulus packages were unable to fulfil one of the government’s main objectives: crowding in private investment.
Private investment has been a key drag on the Thai economy as it continued to contract for three consecutive years. Private investment also seemed to diverge from rising public spending in recent quarters and companies are reluctant to apply for new investment incentives.
One explanation is that investors may still be waiting to see how political developments pan out in coming months and whether mega-projects will be implemented on time. The August 7 referendum could therefore be one of the key turning points for the private-investment outlook.

Charnon Boonnuch is an economist at Tisco’s Economic Strategy Unit.