World Bank, OECD and CIMBT at odds over GDP forecasts
Economic forecasting houses are still divided on Thailand’s growth prospects.
While the World Bank yesterday raised Thailand’s 2018 growth forecast to 4.1% from the 3.6% predicted in August last year, and the Organisation for Economic Co-operation and Development (OECD) lauded Thailand for making impressive economic and social progress over the past several decades, CIMB Thai Bank (CIMBT) cut its growth prediction to 3.7% from 4%.
MYRIAD LOOMING THREATS
“The reasons for the downgrade are the ‘nine-direction wars’, especially the trade war and postponement of Thailand’s general elections to next year, which might affect private investment growth and shortterm confidence,” said Amonthep Chawla, head of research at CIMBT.
Private investment is projected to expand by 2.5%, down from an earlier forecast of 3.8%, as it has been expanding at a tepid pace, said Mr Amonthep.
Private consumption has not recovered on a broad-based level and confidence in the government’s economic policies have been hampered by a delay in the general elections, he said, noting that foreign investors’ confidence hinges on the elections.
Thailand’s economic recovery has also been clustered in businesses related to exports and tourism, while the agricultural sector and small and medium-sized enterprises have not gained much benefit from such recovery impetus, he added.
Earlier, CIMBT forecast Thailand’s GDP growth will reach 4% this year under an assumption that the country would hold the general elections. With prospects of a foreseeable delay, the growth projection has been revised down to 3.5-3.8%.
Southeast Asia’s second-largest economy grew by 3.9% year-on-year in 2017, up from 3.3% recorded a year earlier, driven mainly by exports and tourism.
The National Economic and Social Development Board will announce Thailand’s official GDP for the first quarter on May 21.
From Mr Amonthep’s view, external factors have a larger influence on Thailand’s economic growth than domestic factors.
External uncertainties include a possible war on the back of geopolitical tensions in the Korean Peninsula, the Middle East, and Russia, said Mr Amonthep. These tensions have put pressure on the investment climate, tourism and foreign capital flows.
The trade war between the US and other countries might affect global trade, leading to a currency war as many countries would prefer to weaken their currencies to prop up exports, he said.
There is also a psychological war and a tax war, whereby the US administration’s corporate tax cut aims to attract investors there, said Mr Amonthep.
Despite pertaining risks, CIMBT has revised up its export growth forecast to 7.4% from 4.5% this year following the strong expansion of Thai exports in US dollar terms during the first two months.
Mr Amonthep said he is confident that GDP will not grow less than 3.5% in 2018 because the country’s economic system is flexible and the government can help boost foreign investor confidence by accelerating income distribution to all segments, which will help generate economic growth from the rural level without distorting market forces.
BROADENING RECOVERY
Thailand’s economy is expected to grow at 4.1% this year, the fastest pace since 2012, up from 3.6% predicted last August, as the recovery is broadening with the support of external demand, private consumption, private investment, export growth and infrastructure development, according to the World Bank.
While rapid export growth continues to fuel Thailand’s economy, an increase in capacity utilisation and acceleration in capital goods imports suggest a nascent domestic demand recovery, the World Bank said in a statement.
“With economic growth exceeding 4% this year, for the first time since 2012, Thailand has the potential, with intensifying structural reforms, to raise productivity and grow even faster over the medium term,” Ulrich Zachau, World Bank director for Thailand, Malaysia and Regional Partnerships, said in the statement.
Education reform, i nfrastructure development and competitiveness are instrumental to Thailand’s economic growth this year, he said.
Kiatipong Ariyapruchya, the World Bank economist, said Thailand’s exports are expected to rise 6% this year, but the possible trade war is a risk factor.
But a trade dispute between the US and China has yet to have a big impact on Thai shipments, which should be underpinned by demand from other markets, while signs of domestic demand recovery will also help, he said.
Thailand’s long-term growth prospects will rest on innovation and productivity as labour accumulation and capital expansion will inevitably diminish in the context of Thailand’s rapidly ageing society, he said.
Mr Kiatipong said transitioning into a high-income innovation-based economy requires investment not only for innovative input, but also complementary factors that provide the right incentives for investing in innovation.
Key areas for Thailand include: competition policy, services liberalisation, big data, a skilled workforce, and intellectual property rights. Strong implementation will be a key as innovation is a long-term risky endeavour.
REMARKABLE PROGRESS
Thailand has made impressive economic and social progress over the past several decades, but must take further steps to transform its economy and ensure that prosperity is shared more equally across the country, according to the latest OECD report.
The Initial Assessment of the Multidimensional Review of Thailand highlights how sustained, strong growth and a rapidly modernising economy have turned Thailand into an upper-middle income country. The poverty level has plummeted from 60% in 1990 to 7% today, while education and health services have considerably expanded and improved, fuelling the country’s ambitions to become a high-income country by 2036.
But the report also said Thailand is facing a new set of challenges and needs to find new sources of growth to meet them. Policies and investment are needed to reinvigorate economic transformation, create higher quality jobs and provide more opportunities, particularly for the large share of workers in the most vulnerable forms of employment.
Social protections remain fragmented and are in need of better funding, said
the report.
“Thailand finds itself at a critical stage of development,” OECD deputy secretarygeneral Masamichi Kono said while presenting the report with Kobsak Pootrakool, Prime Minister’s Office Minister, and Porametee Vimolsiri, secretary-general of the National Economic and Social Development Board.
“Yes, there are challenges, but also multiple opportunities that are opening up as Thailand strives to pursue a sustainable development path for the benefit of all. It must seek to reinvigorate economic transformation, reduce multifaceted inequalities and ultimately achieve high-income status. The OECD stands ready to help Thailand design the policies needed to realise these ambitions,” said Mr Kono.
While Bangkok’s success as a metropolis has been key to Thailand’s emergence as a middle-income country, thriving secondary cities are needed to provide new sources of growth and accelerate progress toward sustainable development. This requires improved public governance arrangements to ensure effective delivery of public services nationwide and a focus on environmental conservation, he said.