Posted on 27 Aug 2014
Economy picks up, but challenges lie ahead
Thailand has avoided a technical recession
after the economy enjoyed a surprise upswing in the second quarter. However,
the government's planning agency warns the economy is likely to grow at a
slower pace this year than previously projected.
That is because of the slower-than-expected
recovery of the global economy, a decline in export prices, a slow tourism
recovery and competition in the global tourism market that has persuaded some tourists
to change their destinations.
Other major factors include constraints on
investment growth due to low capacity utilisation, slow progress in approval of
investment promotions in the first half of 2014 and declining car production
and sales from a high base last year.
The National Economic and Social
Development Board (NESDB) yesterday reported the economy expanded by 0.4%
year-on-year in the second quarter due to expansion in both agricultural and
non-agricultural sectors after a contraction of 0.5% in the previous quarter.
On a quarterly basis, the economy expanded
from the first quarter by 0.9% against a contraction of 1.9% in the first
quarter.
A technical recession is defined as two
straight quarters of negative economic growth as measured by seasonally
adjusted quarter-on-quarter figures for real GDP.
"The economy is likely to perform
below its full potential after prolonged political disturbances in the first
five months of 2014, the slow recovery of the export sector and the continuous
decline in car production and sales took a heavy toll on the economy in the
first half," said NESDB secretary-general Arkhom Termpittayapaisith.
"However, in the second half the
economy is expected to grow at a faster pace, supported by improved confidence and
the return of government administration and budget disbursement to normal
processes."
The state planning agency yesterday trimmed
its forecast for full-year growth to between 1.5% and 2% from a range of 1.5%
to 2.5% projected in May.
The economy may expand by 3.5% to 4.5% next
year, the NESDB said.
It cut its export growth estimate for 2014
to 2% from 3.7%.
Total investment was also revised down to a
contraction of 2% from a contraction of 1.3%, with private investment forecast
to contract by 2.9% compared with 0.2%.
"Even though the economy will recover
in the second half and government spending return to normal, exports still face
constraints," said Mr Arkhom. "Private investment is also expected to
recover slowly."
Credit Suisse economist Santitarn
Sathirathai said even though economic activity would improve in the second
half, the firm was more cautious about the pace of the revival.
"To get 1.5% growth, the economy needs
to grow at an average seasonally adjusted quarter-on-quarter annualised rate
near 8.5% or 9% in the second half," he said. "[But] we struggle to
find significant catalysts that would allow the economy to expand at that
pace."
According to Credit Suisse, fiscal policy
is unlikely to provide a significant boost. Infrastructure investment will
likely take time to provide a material uplift to the economy, while some
observers may have exaggerated its near-term growth impact.
Based on 2015 budget estimates, Credit
Suisse also does not see evidence that fiscal policy next year will be more
accommodative.
The recovery of private consumption will
continue to be capped by high household leverage, weak rubber and rice prices
and contracting employment, Mr Santitarn said.
"We see a downside risk to the central
bank's 2014 GDP growth forecast of 1.5%. We're keeping our growth forecast at
1.1%."
Phacharaphot Nuntramas, an analyst at the
SCB Economic Intelligence Center, said the economy had possibly bottomed out
but remained fragile, especially exports and tourism.
Farm prices are still declining and
household debt remains relatively high, putting further pressure on household
spending.
"We see the economy in the second half
recovering with gradual growth," he said.
