Risks pose threats to growth
Aviation, Mers, Greek crisis add to gloom
Greater internal and external downside risks threatening the economy have raised concerns that this year’s annual growth may come in below the Bank of Thailand’s 3% forecast, says a senior central bank official.
Don Nakornthab, director of macroeconomic policy, said the 3% baseline growth projection had not taken recent negative developments into account.
Additional negative factors are the International Civil Aviation Organization’s decision to place a red flag on Thailand’s aviation safety, the first case of Middle East respiratory syndrome (Mers) here, harsher-than-expected effects from the drought and Greece’s debt default to the International Monetary Fund.
“Every member of the Monetary Policy Committee (MPC) agrees the 3% projection could be a base-case forecast, but they also view that there is a possibility it may be lower, given the aforementioned risks,” Mr Don said.
The central bank is concerned that Greece’s debt crisis will induce shortterm volatility in financial markets, while China’s slower-than-expected economic growth could exacerbate Thailand’s export downturn, he said.
Mr Don said private consumption was being dragged by swelling household debt and lower farm incomes resulting from low prices of produce and effects from the drought, while the continuous decline in consumer confidence was another indication of weak consumption.
The central bank recently trimmed its GDP forecast for this year to 3% from 3.8% while predicting shipments would shrink by 1.5%.
“We don’t think a weaker currency and lower interest rates would help to stimulate the economy that much, but they would help to sustain the economy as it awaits greater public investment,” Mr Don said.
The MPC kept its policy interest rate at 1.5% on June 10 after making consecutive cuts of 25 basis points in March and April.
Energy Minister Narongchai Akrasanee said Thailand’s economy had entered a “new normal” of slower growth on the back of a decline in global growth and trade as well as lower commodity prices.
The country’s growth potential is expected to be 3-4% annually from 4-5% previously, he said.
Thailand’s adjustment to comply with international standards on human trafficking, aviation safety and illegal fishing has also limited growth potential, Mr Narongchai added.
Phacharaphot Nuntramas, SCB Economic Intelligence Center’s senior vice-president for economy and financial market research, said the drought and spread of Mers posed downside risks to achieving the research house’s 3% forecast this year. Slow state budget disbursement is another risk factor.
The centre forecasts the central bank will again slash the policy rate by a quarterpercentage point in the third quarter to 1.25%.
It believes an economic recovery will gain speed in the second half of this year, underpinned by improved consumer confidence, t ourism and public expenditure.
The research house has also revised down its 2015 export forecast to a 1.5% contraction from 1.3% due to the 4.2% slump in exports in the first five months.
Based on a 1.5% fall in exports, shipments are forecast to grow by 0.3% and 0.4% in the third and final quarters, respectively.
The Joint Standing Committee on Commerce, Industry and Banking is set to trim its 2015 economic and export growth forecasts on Monday following no clear signs of an economic recovery, said Supant Mongkolsuthree, chairman of the Federation of Thai Industries.
It projects economic growth will come in at 3.5% this year, assuming export growth of 1%.
Slow progress on infrastructure investment is the major concern among businessmen, as such investment is expected to be a main driver for economic growth in the second half, Mr Supant said.
Finance Minister Sommai Phasee said the ministry would accelerate hiring people in rural areas for civil works to alleviate the impact from the drought. Leftover 2014 budget can finance employment.