The multiplier effect from government infrastructure investment in the economy is ebbing due to technological changes, while crowding-in private investment has also been delayed, says the Bank of Thailand governor.
"As major construction companies have been relying more on technology and machines instead of hiring subcontractors, the multiplier effect from the government's investment in the overall economy has diminished," said central bank governor Veerathai Santiprabhob.
Large construction companies in the past usually allocated projects they had secured through government auctions to many small, local construction firms, which resulted in government infrastructure projects stimulating the economy at many levels of the supply chain, Mr Veerathai said.
But the advent of new technology has changed the way these businesses operate by pushing them to adopt more sophisticated machines to lower costs, he said.
As a result, investment in the sector is having a smaller multiplier effect on the economy than in the past.
"It's only an observation that we [at the central bank] have made, so we still don't have the exact numbers," Mr Veerathai said. "A more in-depth study of the issue needs to be conducted."
His remarks underscored Finance Ministry data showing that the country's GDP grew by 0.3 percentage points for every one-percentage-point increase in investment during 2006-14, down from 0.7 percentage points during 2000-05.
The government is spending big in the hopes that such investment will help the country escape its uneven recovery and create a crowding-in effect, as many growth engines, including private investment, have failed to pick up steam.
Mr Veerathai said the crowding-in effect from the government's megaprojects has at times been delayed as a result of uncertainty in the private sector.
"The crowding-in effect that we expected from the government's major infrastructure projects is facing a lag, as there are a lot of uncertainties around those projects," he said.
Despite efforts to push these infrastructure projects to materialise through measures such as the Thailand Future Fund and the Public-Private Partnership, obstacles such as prohibitive regulations remain in place, making the private sector reluctant to invest more.
"Right now the private sector is waiting for these projects to be completed or even start operations before deciding to invest in expanding their businesses," Mr Veerathai said.
But investment in new sectors such as information and communications technology (ICT) did produce a strong multiplier effect on the economy.
"Over the past 2-3 years we have seen a large amount of investment in the ICT sector, especially due to the 3G and 4G spectrum auctions," Mr Veerathai said.
Despite the subdued private investment, funds have flowed into telecommunications and renewable energy, he said.
The National Economic and Social Development Board reported that private investment shrank by 1.1% in the first quarter of 2017, worse than the 0.4% contraction seen in the fourth quarter of 2016.
Mr Veerathai said setting up of the Eastern Economic Corridor is expected to help attract more investment from both local and foreign businesses.
Turning to another issue, he said the sudden surge in the baht against the US dollar was partly due to misinterpretation of a Monetary Policy Committee (MPC) statement that the central bank is not concerned about the currency's value.
"Close monitoring of capital flows is needed [from the central bank] during this period, as there might be some short-term inflows, causing the baht to move drastically," Mr Veerathai said. "It's the mandate of the central bank to take care [of the currency] through its measures periodically."
During the MPC's May 24-26 meeting, the baht gained 0.97% against the US dollar, outpacing regional peers such as the Malaysian ringgit (+0.56%), the South Korean won (+0.54%), the Indian rupee (+0.53%), the Philippine peso (-0.49%), the Singaporean dollar (+0.46%) and the Chinese yuan (+0.41%).
The baht softened a bit to 34.12 yesterday, compared with 34.11 on Monday.
Mr Veerathai said the central bank still has a number of instruments under its mandate that could be used, but they will only be announced upon coming into force.
"The Bank of Thailand will decide on a monthly basis whether measures to cut its bond issuance should continue," he said.
