The Finance Ministry's Fiscal Policy Office (FPO) is set to cut this year's economic growth forecast from 4% to between 2.8% and 3.1%, depending on political developments, in a fresh sign the economy is faltering.
Gross domestic product (GDP) growth could come in at 3.1% if the political rallies are peaceful and a new government is installed and functional, director-general Somchai Sujjaponse told a seminar on the 2014 economic outlook hosted by Land and Houses Bank yesterday.
However, expansion will lower to 2.8% to 2.9% if there are violent protests and a functional government is not installed.
The second reduction in recent months will be announced next month.
Late last December, the FPO slashed its growth estimate for 2014 to 4% from 5.1%.
Political uncertainty is the main risk factor eroding domestic consumption and investment while exacerbating the already-fragile state of the economy.
The FPO's soon-to-be-cut GDP growth forecast is not a surprise, as other state agencies and private research houses have already reduced their growth projections.
Bank of Thailand governor Prasarn Trairavorakul this month said economic growth could fall below 3% this year.
The central bank's Monetary Policy Committee (MPC) at this year's first policy rate meeting on Jan 22 trimmed its growth forecast to 3% from 4%.
"Earlier, we predicted GDP growth this year at 5%, but it could be lower than the predicted level due to the prolonged political turmoil," said Mr Somchai.
"Several research houses have revised down their projections, and some of them have lowered the growth rate to below 3%."
The FPO predicts GDP growth last year will likely show a 2.8% expansion, similar to the MPC's projection of below 3%.
The weakening economy and the ongoing political tensions will also pressure banks' non-performing loans, which have increased from 2.2% of loans outstanding at the end of last year's third quarter to 2.4% now.
Close monitoring of the industry's bad debts is warranted.
Amid growing internal uncertainty, external factors regionally and globally are expected to jump-start Thailand's exports to be the main driver underpinning the country economic growth this year amid an absence of new economic stimulus packages under the caretaker government.
However, the 250-billion-baht budget deficit and another 350 billion available for investment during fiscal 2014 ending this Sept 30 will help in propping up economic growth.
Amid ebbing economic growth momentum, however, the country's low public debt, tamed inflationary pressure, high level of foreign reserves and the solid financial status of the banking sector will provide cushions for several risks, Mr Somchai said.