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SCB Economic Intelligence Centre revises down GDP growth

Oct 08. 2019
Yunyong Thaicharoen
Yunyong Thaicharoen
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Siam Commercial Bank’s Economic Intelligence Centre (EIC) has revised down its forecast for gross domestic product (GDP) growth this year to 2.8 per cent from the previous 3.0 per cent, due to the prolonged trade war between the United States and China, according to chief economist Yunyong Thaicharoen.

The tariff battle not only adversely affects global manufacturing and international trade and investment, but also slows down the services sector, the EIC said in its paper. 

Moreover, technical recession risks have been rising in countries with a high degree of openness, including Germany, Hong Kong and Singapore. 

In response to the global economic slowdown and rising downside risks, central banks around the globe have eased their monetary policies. Countries with the advantage of fiscal policy space have also implemented stimulus measures. 

Regarding the Thai economy, the exports and tourism sectors are not affected only by the global slowdown but also a strengthening of the baht. 

As a result, the EIC has revised down its forecast for 2019 export growth to -2.5 per cent year on year. 

And while tourist arrivals are still expected to reach 40.1 million, a strong baht has prompted the centre to revise down tourist spending per head. 

As for domestic demand, recent private consumption and investment spending are showing signs of a slowdown, especially in the property sector and domestic car sales.

Moreover, weak economic conditions are reflected by falling employment, especially in the manufacturing sector, a slowdown in tourism spending and farm income, and weakening consumer confidence as well as more cautious lending by commercial banks on the back of deteriorating loan payback conditions and a tightening of loans. 

The EIC expects the impact from stimulus measures announced in August to mainly shore up non-durable consumption in the fourth quarter this year.

The centre also forecast 2.8 per cent year on year of GDP growth next year amid the global slowdown and subdued domestic purchasing power due to stubbornly high household debt. The key concerns are downside risks from prolonged and widespread trade war effects, combined with the rising risk of a technical recession in countries with a high degree of openness.

As a result, the EIC expects a precarious global economic recovery next year and hence a sluggish recovery for Thai exports of 0.2 per cent year on year in 2020.

Concerning private domestic demand, the centre foresees a slowdown in private investment due to fragile export recovery and feeble residential construction on the back of tightening LTV (loan-to-value) measures. 

Similarly, private consumption in 2020 is expected to slow down amid high household debt and more cautious lending by banks.

Consequently, public investment in infrastructure projects, public consumption and government stimulus measures are likely to be key factors in shoring up the Thai economic recovery in 2020.

On the monetary policy outlook, the EIC has maintained the view of another policy rate cut in the fourth quarter this year to 1.25 per cent, with the policy rate at a record low level throughout 2020.

In 2020, the Monetary Policy Committee (MPC) is likely to keep its policy at 1.25 per cent throughout the year to boost domestic purchasing power through lower financing costs.

The lower costs might not boost substantial new lending, but it is likely to lower debt service expenses for households and SME businesses. 

The EIC expects pressure on the baht to intensify, compared to its regional peers, because of a massive current account surplus and smaller policy rate cuts by the MPC as well as capital inflows into the country, resulting from the baht’s status as a regional safe haven currency. 

The centre believes the baht will move in the range of Bt30-31 to the US dollar next year.

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