Disappointing numbers add to uncertainty

First, the recent outcome of the Brexit vote in the United Kingdom has not only added more risks to global financial markets, but also prolonged the market process of economic recovery both in the UK and the European Union.
It means that Thai exporters will have a harder time increasing their exports to the European market, and the situation could worsen if Europe’s sluggish economy and political conflicts persist for a long period.
Second, there are the recent large, short-term inflows of capital from advanced economies into Asia and Thailand, which have not only pushed up share prices in local stock markets, but also the exchange rate between the baht and the US dollar.
Local-currency appreciation can hurt the competitiveness of Thai exports, not to mention the risks of sudden capital flight.
Third, US economic growth in the second quarter came out as just 1.2 per cent, compared to the earlier forecast of 2.5 per cent, indicating that the US economic outlook is much weaker than anticipated.
It also increases the possibility that the US Federal Reserve may not adjust its policy rate anytime this year.
 
The recovery of the US economy may not therefore strong enough to pull the global economy out the threat of deflation and rising global debt anytime soon.
This is certainly not good news for Thai exporters, since the US is one of the major markets for Thai shipments.
Fourth, the recently announced voluntary-redundancy programme to lay off hundreds of temporary workers in the automobile and auto-parts sectors in Thailand is a clear signal of shrinking domestic sales and exports in these sectors.
Overcapacity means limited new investments, as well as fewer new manufacturing plants being constructed. Apart from these global factors, the Thai constitutional referendum tomorrow may be considered as a local factor that can affect growth in some aspects.
However, according to a recent opinion poll, its outcome should not have any significant impact on the country’s short-term growth.
From the policy standpoint, the only clear policy option left, at the moment, is to launch a few large public infrastructure investment projects as well as some social welfare-related programmes aimed at stimulating the Thai economy in the short term and overall productivity in the long term, through new public investments and private consumption channels.
 
Professor Arayah Preechametta is a lecturer at the Faculty of Economics, Thammasat University.