Standard Chartered pegs GDP growth at 4% for 2019
Standard Chartered Bank has lowered Thailand’s GDP forecast for this year from 4.5 to 4 per cent due to political uncertainty and weakened exports from the US-China trade war.
The bank also predicted that due to the political uncertainty, the Bank of Thailand (BOT) would hold its policy interest rate until the third quarter of this year.
“Our GDP growth forecast for 2019 remains 4 per cent as of now, as there are various uncertain factors such as the election results, progress in the trade war negotiations and economic stimulus packages from the government,” Tim Leelahaphan, Standard Chartered Bank’s economist, said yesterday at a press conference.
Standard Chartered had in January forecast 4.5 per cent GDP growth this year. However, after the sluggish growth in the first quarter and slow progress in the implementation of Eastern Economic Corridor projects, coupled with sliding exports and political uncertainty, the bank has adjusted down the GDP forecast to 4 per cent. It, however, remains a more optimistic prediction compared to other financial institutions in the country.
Leelahaphan acknowledged that the forecast was comparably optimistic. The BOT adjusted down its GDP forecast from 4 per cent to 3.8 per cent and Siam Commercial Bank’s Economic Intelligence Centre took theirs down to 3.6 per cent.
However, Leelahaphan insists that the 4 per cent growth rate is achievable based on three factors.
First, despite exports continuing to weaken in the first quarter, he foresees progress in the US-China trade negotiations, which may lead to Thai exports recovering in the second half of the year.
Second, the government is currently in the process of implementing an economic stimulus package to boost domestic spending. This may also contribute to overall economic growth during the year.
Political uncertainty is also expected to reduce after the new government takes office. This is a key factor damaging the sentiment of foreign investors, he said. Leelahaphan predicts the new government to be in place in May.
Nevertheless, he added, if progress were slow on these issues, Standard Chartered may lower the GDP forecast in the second half of the year to between 3.5 and 3.9 per cent.
“With the election results still unclear, the eventual formation of a new government is difficult to predict. Against this backdrop, we expect the BOT to keep rates steady for now. We expect a unanimous decision to keep rates on hold at 1.75 per cent in the May and June meetings of the Monetary Policy Committee,” he said.
“As economic growth recovers in the second half of 2019, we expect the central bank to raise its policy rate by 0.25 per cent, from 1.75 per cent to 2 per cent by the end of this year,” he predicted.
This is because the central bank has stressed the importance of financial stability within the country. The central bank values the creation of policy space to cope with long-term risks, he explained.
Another political risk that could damage the economy is the policies implemented after the new government is formed.
“All major political parties have promised to increase the minimum wage. However, we believe that the implementation of this policy will not occur in 2019,” he said.
If the minimum wage is hiked, the costs for businesses, particularly small and medium sized enterprises, would rise significantly, and these smaller businesses would struggle to survive and grow, the economist said.
Moreover, as businesses try to cut costs, workers may be made redundant as companies look to replace workers with automation amid rising minimum wages. The real winners in this scenario may be immigrant workers who are willing to undercut the rising minimum wage of Thai workers, he cautioned.
