Posted on 05 May 2010
The bank, which recently lifted its Thai gross domestic product (GDP) growth estimate for the year to between 4% and 4.5% from 3%, said the economy is under pressure as tourism has been hit hard by the United Front for Democracy Against Dictatorship's (UDD) rallies in Bangkok.
The economy has begun to feel significant impacts since the red-shirt demonstrators occupied the Ratchaprasong commercial district at the beginning of last month, said Jean-Pierre Verbiest, country director of the ADB's Thailand Resident Mission.
"The top end of our GDP forecast of 4.5% is based on the expected sharp recovery in the first two quarters of the year," he said.
"But in case the situation is prolonged and causes a two-month disruption of business activities, the growth might fall below 4%."
The ADB report pointed out that political tensions have derailed investment projects under the government's Thai Khem Khaeng infrastructure scheme.
"The government is likely to be cautious in approving projects and disbursing funds during a period of disruption. Cases of alleged corruption have already delayed disbursement in health and education projects," said the report.
Spending in the Thai Khem Khaeng programme got off to a slow start, with only 22% disbursed in the first half of the current fiscal year.
"The government will need to accelerate disbursement of the infrastructure programme if it is to meet its target spending for fiscal year 2010," it added.
Mr Verbiest said the ADB, in its updated GDP forecast available since Songkran, expects strong exports and rebounding private investment to help the Thai economy beat previous growth projections, rebounding from a contraction of 2.3% last year in the face of the global recession.
"The current forecast is made on the assumption that the political situation does not deteriorate too much and the Map Ta Phut environmental and legal wrangle is resolved soon," he said.
Growth in exports, the key driver of the Thai economy, still depends on the strength of recovery in industrialised countries and the impact of drought on Thai agriculture, he added.
The forecast also assumes a general election will be held earlier than previously expected, he said.
Exports of products are forecast to rise by 16% this year.
Commerce Ministry figures show exports increased for a fifth straight month in March, up 40.9% year-on-year, with first-quarter value up by 31.6% from the same period last year.
Private consumption is expected to climb by about 3% this year on the back of growth in employment and wages, which were raised in January. Investment is forecast to recover from last year's low levels, expanding by about 6% in 2010, and by more next year.
"Stronger export demand has led to an increase in industrial capacity utilisation which, if continued, will pave the way for an expansion of capacities in industries such as food processing, petroleum products and construction materials," said the ADB report.
"Nevertheless, the recovery in investment will be constrained for at least part of 2010 by political uncertainties and the Map Ta Phut issue," it added.
ADB expects inflation to average about 3.5% this year due mainly to higher food and fuel prices. The bank bases its forecasts on oil averaging $80 per barrel.
"Downside risks to the forecasts from domestic uncertainties could delay fiscal implementation and hamper policymaking in general. More significant disruptions would hurt consumers' and investors' sentiment and fiscal revenue," the report said.
On the other hand, a more settled political situation and resolution of the Map Ta Phut issues would likely spur strong growth, the report added.
