Economists call for boost to consumer spending, stimulus measures in 2nd half to lift economy

“The most effective measure to stimulate the economy in the second half is to promote policies that directly target consumer spending,” Mana Nimitvanich, first vice president of the group, said on Thursday.
He expects the next government to inject Bt50 billion to Bt100 billion into the economy by the year-end through policies to promote consumption such as offering welfare cards to low-income earners in the country.
Boosting consumer spending is necessary to cushion the negative impact from the slowdown of exports since the beginning of this year, he said.
“We have cut our GDP growth forecast for 2019 from 3.6 per cent to 3.3 per cent, due mainly to the ongoing US-China trade tensions, which have continued to damage Thai exports,” said Phacharaphot Nuntramas, senior vice president of the bank’s macro research unit. 
The group expects Thai exports to grow by a mere 0.8 per cent in 2019, down sharply from 7.7 per cent last year, largely due to the trade conflicts. 
The slashing of the export growth forecast is also due to the signing of the EU-Vietnam free trade agreement (EVFTA), which will make exports from Vietnam to the EU more competitive than Thai products.
“Thai shipments to the EU account for up to 10 per cent of the country’s total exports,” Mana stated.
However, he said, Thailand’s exports to the region have already been overtaken by Vietnam in recent years. With the EVFTA becoming active later this year, Vietnamese goods will be even more competitive than Thai products. Mana predicted that the EVFTA will cut into more than 1 per cent of total Thai exports in 2019.
Both Thailand and Vietnam primarily export machinery and parts, electrical appliances and garments to the EU. With lower tariffs and cheaper prices under the free trade pact, Vietnamese exports may cut into Thailand’s existing market in the region, he explained.
To cope with this issue, exporters should consider relocating their manufacturing base to Vietnam to capitalise on that country’s advantages in exports and leverage their lower cost of labour, Mana suggested.
Meanwhile, public spending, which was touted as Thailand’s new engine for growth in 2019, has not been as high as expected.
The Transport Ministry plans to invest Bt200 billion in infrastructure projects this year, Mana said. However, the bank’s assessment of various public infrastructure projects throughout the country estimates only Bt77 billion will actually be invested this year. 
“Of the Bt77 billion to be invested in transportation infrastructure this year, Bt50 billion will be spent on projects around the central region,” he stated. This means the impact of public investment in these projects will not be felt equally throughout the country.
Furthermore, Bt77 billion would amount to only 0.1 of the country’s GDP, while exports, which have been in decline since the beginning of the year, account for 75 per cent. 
“Therefore, our assessment suggests that public investment will not be sufficient to offset Thailand’s slow economic growth in the second half,” Mana concluded.
On the other hand, Thailand’s financial markets have been reacting well to the global financial trends, the group stated.
Central banks around the world have signalled cuts in interest rates. The group said the Bank of Thailand is expected to maintain the policy rate at 1.75 per cent throughout 2019 and 2020, as inflation stays low. It does not anticipate the policy rate to be raised, as that may lead to a further strengthening of the baht, making Thai exports even less competitive.
The central bank's current stance, compared to last year's trend of rate increases, has improved investor confidence and prospects are positive for the rest of 2019, given that Thailand’s political situation remains stable, said Jittipol Puksamatanan, chief market strategist of Krungthai Bank.
Jittipol added that the baht will remain strong throughout the year, thanks to the Kingdom’s high current account surplus. Jittipol predicted that the currency would rise to Bt30.25/dollar by the year-end.