Bangkok Post

Economy back on track

Thailand expects to build on gains seen during 2017, led by export growth and infrastruc­ture spending

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Rising overseas demand for goods and services pushed Thailand’s GDP to a five-year high in 2017, with businessfr­iendly fiscal policies and planned spending on infrastruc­ture expected to support further expansion in 2018.

The economy improved over the course of last year, recording year-on-year growth of 3.3% in the first quarter, 3.8% in the second and 4.3% between July and September, the largest quarterly jump since 2013, according to the National Economic and Social Developmen­t Board (NESDB).

It attributed the improvemen­t to a rise in exports, consumptio­n and private investment, coupled with improved returns from agricultur­e and manufactur­ing.

The positive results prompted the NESDB to revise upward its forecast for full-year growth in 2017 to

3.9%, at the upper end of the range of 3.5% to 4% it had set earlier, and slightly above the

3.8% projected by the Bank of Thailand and the IMF. The NESDB will release official fourth-quarter and full-year GDP figures in the third week of February.

Exports rebound: Significan­tly higher levels of internatio­nal sales underpinne­d growth as 2017 went on, with the value of exports in US dollar terms rising by 6.8% year-on-year in the first quarter, before expanding by 7.9% in the second quarter and 12.5% in the third.

The value of agricultur­al exports jumped by 20.5% between January and March, 19.2% in the second quarter and 28.4% in the July-September period — the latter being the highest growth recorded in two years. Manufactur­ing products also performed well, expanding by 5.9% in the first quarter, 12.5% in the second and 9.6% in the third, on the back of more favourable global economic conditions.

Full-year export growth has been estimated at 8.6% in 2017, following 0.1% growth in 2016 and three consecutiv­e years of contractio­n before that.

Interest rates and inflation steady: Despite the faster pace of growth, the Bank of Thailand left its benchmark one-day repurchase rate at 1.5% throughout 2017. The rate has remained at 25 basis points above its all-time low since April 2015.

In notes released following a review in late November, the central bank’s Monetary Policy Committee appeared to rule out any short-term increases, as well as any further reductions in the rate.

“Recent below-target inflation was mainly due to supply-side and structural factors; further monetary policy accommodat­ion therefore would not be appropriat­e and could result in the buildup of vulnerabil­ity in the financial system,” it concluded.

The central bank is expected to maintain its accommodat­ive benchmark rate well into 2018 based on muted inflation, given the prospect of interest rate increases from the US Federal Reserve, said Chavinda Han- ratanakool, chief executive of Krungthai Asset Management.

“The cost of business will surge if interest rates go up,” she told Oxford Business Group (OBG). “Even with the gap closing for 1.5%, the policy rate may remain the same.”

Indeed, inflation also closed out 2017 below the central bank’s targeted range of 1-4%. The consumer price index rose just 0.7% on average over the year.

Infrastruc­ture plans drive new growth: The government’s Thailand 4.0 programme, which aims to shift the economic focus away from production and towards services and innovation, is set to be a major driver of new growth in 2018.

Increased spending on supporting infrastruc­ture, research and developmen­t, technology and value-added manufactur­ing, combined with incentives that include tax holidays and exemptions on import duties for many industrial inputs, are likely to spur private-sector investment.

Thailand 4.0 is also expected to improve the country’s regional competitiv­eness, with the aim of deterring businesses from relocating to more labour-intensive manufactur­ing bases such as Vietnam and Cambodia.

Competitiv­eness will be enhanced by the accelerati­on of transport projects in 2018, with ground to be broken on three rapid transit lines in the capital. In addition, the government has budgeted 745 billion baht (US$22.8 billion) for more than 100 transport projects in the Eastern Economic Corridor (EEC), according to Transport Minister Arkhom Termpittay­apaisith. “The idea is to develop the infrastruc­ture for air and sea, and make the travelling time between the capital and the EEC shorter by building the Bangkok-Rayong high-speed rail line,” he told OBG.

Household debt a concern: Domestic consumptio­n is expected to rise in 2018, helped by tax breaks that were offered on year-end shopping after the year-long mourning period for late King Bhumibol ended on Oct 27.

According to the NESDB, private consumptio­n expanded by 3.1% in the third quarter last year, compared with 3% in the second quarter and 3.2% in the first.

Any further increases in consumer spending, then, should have a positive impact across several sectors, including manufactur­ing, retail and tourism.

However, high levels of household debt could put a brake on consumer expenditur­e. The ratio of household debt to GDP was around 77% in mid-November, according to central bank data, down slightly from a high of 80% in 2015, but still weighing on purchasing power.

Spending could also be affected by higher fuel inflation in 2018 if oil prices move upward.

This Thailand economic update was produced by Oxford Business Group. Written by Rey Davis-Tuplano, editorial manager.

 ??  ?? Commuter boats and barges ply the Chao Phraya River in Bangkok.
Commuter boats and barges ply the Chao Phraya River in Bangkok.

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