A heady 12 months
Several positive developments gave cause for hope amid an otherwise gloomy 2019, write Post reporters
The clock is ticking down to the year-end, and the Bangkok Post’s Business section has selected the top events of 2019. Against the backdrop of a synchronised slowdown in the global economy, a spate of bad news dominated headlines this year, led by the lingering US-China tit-for-tat trade feud and the firmer baht dealing a blow to exports.
Meanwhile, the central bank cut its policy rate to a record low; household leverage swelled, weakening purchasing power and posing a threat to financial stability; tighter loan-to-value (LTV) requirements dented home demand; and a lengthy period of government formation delayed state spending and investment disbursement.
Economic growth lost momentum and prompted the government to stimulate through a series of measures, including the Taste-Shop-Spend scheme and visa-on-arrival waivers. In the media space, seven digital TV channels decided to exit the business.
Despite overwhelmingly negative news, there were nonetheless some good tidings, including an unprecedented and concerted effort to combat plastic waste by state agencies and the private sector.
DELAYED GOVERNMENT
Besides uncontrollable external factors, the prolonged political struggle to form a new government deserved some of the blame for the country’s economic slowdown in 2019.
It took seven months for the elected government to form after the March general election, bringing an end to five years of military rule.
The vacuum period not only resulted in a delay in state spending, but also knock-on effects to public and private investment.
This was evidenced by a report by the government’s planning unit, the National Economic and Social Development Council (NESDC), which revealed that the economy grew by just 2.3% yearon-year in the second quarter, the slowest pace since the third quarter of 2014. The growth rate eased from 2.8% growth in the first quarter.
According to the NESDC report, public expenditure totalled 712.31 billion baht in the second quarter of calendar 2019, down 9.7% from the same period a year earlier.
Regular budget expenditure fell by 9.7%, while investment spending declined by 1.1%.
Budget disbursement in the second quarter dipped 15.1% to 590.12 billion baht, with the disbursement of carry-over budget totalling 71.26 billion baht, up 66.8%, and disbursement among stateowned enterprises excluding PTT Plc accounting for 53.64 billion baht, down 6%.
The delay in the government’s formation also affected the process of the fiscal 2020 budget. The budget plan passed the first reading of parliament on Oct 19, prompting implementation of the budget to be postponed to late January — a three-month delay from the normal schedule.
The postponement had an impact on investor confidence. The NESDC reported that total investment in the second quarter grew by 2.3%, down from 2.8% in the first quarter.
Private investment expanded by 2.2%, down from 4.4% in the first quarter.
Private consumption in the second quarter rose by 4.4%, down from 4.9% in the first quarter, while state consumption increased by 1.1%, down from 3.4% in the previous quarter.
TRADE WAR
A bitter trade battle between the world’s two largest economies, simmering for nearly 18 months, took its toll on the trade and economies of the two nations, with fallout in Thailand as well.
The International Monetary Fund said in October that the escalation of US-China trade tensions was one factor contributing to a “significantly weakened global expansion”. The global lender cut its 2019 global growth forecast.
The new forecast predicts global growth of 3% this year, down 0.2 percentage points from the previous forecast in July and sharply below the 3.6% growth of 2018. 2019 will be the weakest year since global growth sagged to -0.1% in 2009, when the global economy was struggling with the shock waves of the 2008 financial crisis.
Some countries are being indirectly impacted, especially those that are important trading partners of the US or China, or play key roles in their supply chains.
In July, US President Donald Trump followed through on months of threats to impose sweeping tariffs on China for its alleged unfair trade practices and intellectual property theft.
So far, the US has slapped tariffs on $550 billion worth of Chinese goods, and China has retaliated with tariffs on $185 billion in US products.
Washington delivered three rounds of tariffs, then a fourth in September. The latest round targeted Chinese imports, from meat to musical instruments, with a 15% duty.
Beijing has hit back with tariffs ranging from 5% to 25% on US goods.
China’s latest tariff strike included a 5% levy on US crude oil, the first time fuel has been hit in the trade battle.
The US and China agreed by the middle of December to details of the so-called first phase of a broader trade agreement, a move that will see the US reduce tariffs and at least temporarily calm fears of an escalating trade war. The negotiations are ongoing.
Trade uncertainty has hurt businesses and weighed on the global economy. The gloomy prospects prompted the NESDC in November to cut its 2019 GDP forecast again to 2.6%, from an earlier projection of 2.7%-3.2%.
The council also downgraded its export forecast this year to a contraction of 2%, down from a 1.2% pullback.
The baht could still reverse its trend, and twoway movements vis-a-vis the dollar are expected to increase next year.
MATHEE SUPAPONGSE
Deputy governor, Bank of Thailand
POLICY RATE CUTS
After the US Federal Reserve cut rates for the first time since 2008 in July, central banks of other nations followed suit. The Bank of Thailand lowered its policy rate by 25 basis points in August, the first decrease since 2015.
The central bank’s manoeuvre came earlier than the market expected and a few weeks ahead of the second quarter’s economic reading — the slowest pace in 19 quarters — being announced. The economy rose 2.3% from a year earlier for the Aprilto-June quarter, easing from 2.8% growth in the first three months.
Bank of Thailand governor Veerathai Santiprabhob’s earlier comments that the rate was already low and that further monetary easing would not help much also added to signs that the rate would be reduced later in the year or next.
At August’s meeting, five out of seven rate-setting members voted in favour of a quarter-point interest rate cut, saying a more accommodative monetary policy should help economic growth and support the rise of headline inflation towards the target.
Two MPC members saw a rate cut as unnecessary, reckoning there remained a need to preserve policy space. The market believed that an absence of fiscal stimulus at that time, due in part to the lengthy