Pre-election investment upswing to drive 2018 GDP growth above 4%
THIS MONTH the Constitution Drafting Committee (CDC) will finalise two bills on the election of MPs and the selection of senators. Once these bills are promulgated, the election date must be held within 150 days.
Based on our discussions with the CDC, the laws should become effective in June or July and the election likely to take place in the final quarter next year . This is in line with the official announcement, that the election will likely take place in November 2018.
Thailand’s return to democracy will be a catalyst for a new private investment cycle. Evidence shows that private investment and FDI flows are much stronger during periods of elected government. Based on our calculation, private investment was 3 percentage points higher in the period of elected governments. Thailand’s share of FDI in the region during elected governments was also more than double compared to the period of non-elected governments, at 15.4 per cent vs 6.7 per cent. In addition, the crowding-in effect of public investment should also improve next year, as construction of various mega-projects kicks off.
Investment in megaprojects, which have been delayed from 2017, will likely accelerate in 2018. We estimate the disbursement of infrastructure investment will grow 3-fold to Bt240 billion in 2018, up from Bt80 billion in 2017. In addition, bidding of new projects worth a combined Bt1.4 trillion, including key EEC projects such as Bangkok-Rayong high-speed train and U-Tapao airport, will likely be concluded before the election to ensure the continuity of the projects in the future government.
Private consumption is expected to continue to grow at a moderate pace, thanks to the pre-election stimulus. The government’s cash handout programme for low-income earners, which has been launched recently, will continue in 2018 and amount to Bt40 billion in annual transfers. The second phase of fiscal support targeting the poor is expected to win Cabinet approval in December. The government is also expected to announce a tax break of up to Bt30,000-50,000 for tourism expenditures in 2018.
On external front, exports will continue to be robust as oil and commodity prices continue to recover. Oil-exporting countries such as the Middle East, Russia and Malaysia are important economic partners in terms of trade and tourism. Combined, they accounted for around 11 per cent of Thailand’s total exports and 18 per cent of tourism revenue, during 2011-2015. The current oil price rally will improve demand for both exports and tourism.
All in all, we forecast above-consensus 2018 GDP at +4.1 per cent. While growth should be more broad-based in 2018, exports and tourism will remain the key drivers. On the domestic front, public and private investment should accelerate during the run-up to the election, while private consumption is expected to expand at a similar pace in 2017.
CHARNON BOONNUCH is Head of Economics at TISCO Economic Strategy Unit. He can be reached via www.tiscowealth.com or [email protected].
