Thailand has avoided a technical recession after the economy enjoyed a surprise upswing in the second quarter. However, the government's planning agency warns the economy is likely to grow at a slower pace this year than previously projected.
A worker cleans a window at Suvarnabhumi airport. Thailand's state economic-planning agency has cut its 2014 growth forecast to within a range of 1.5% to 2% due to a slow recovery in private investment and tourism. THANARAK KHUNTON
That is because of the slower-than-expected recovery of the global economy, a decline in export prices, a slow tourism recovery and competition in the global tourism market that has persuaded some tourists to change their destinations.
Other major factors include constraints on investment growth due to low capacity utilisation, slow progress in approval of investment promotions in the first half of 2014 and declining car production and sales from a high base last year.
The National Economic and Social Development Board (NESDB) yesterday reported the economy expanded by 0.4% year-on-year in the second quarter due to expansion in both agricultural and non-agricultural sectors after a contraction of 0.5% in the previous quarter.
On a quarterly basis, the economy expanded from the first quarter by 0.9% against a contraction of 1.9% in the first quarter.
A technical recession is defined as two straight quarters of negative economic growth as measured by seasonally adjusted quarter-on-quarter figures for real GDP.
"The economy is likely to perform below its full potential after prolonged political disturbances in the first five months of 2014, the slow recovery of the export sector and the continuous decline in car production and sales took a heavy toll on the economy in the first half," said NESDB secretary-general Arkhom Termpittayapaisith.
"However, in the second half the economy is expected to grow at a faster pace, supported by improved confidence and the return of government administration and budget disbursement to normal processes."
The state planning agency yesterday trimmed its forecast for full-year growth to between 1.5% and 2% from a range of 1.5% to 2.5% projected in May.
The economy may expand by 3.5% to 4.5% next year, the NESDB said.
It cut its export growth estimate for 2014 to 2% from 3.7%.
Total investment was also revised down to a contraction of 2% from a contraction of 1.3%, with private investment forecast to contract by 2.9% compared with 0.2%.
"Even though the economy will recover in the second half and government spending return to normal, exports still face constraints," said Mr Arkhom. "Private investment is also expected to recover slowly."
Credit Suisse economist Santitarn Sathirathai said even though economic activity would improve in the second half, the firm was more cautious about the pace of the revival.
"To get 1.5% growth, the economy needs to grow at an average seasonally adjusted quarter-on-quarter annualised rate near 8.5% or 9% in the second half," he said. "[But] we struggle to find significant catalysts that would allow the economy to expand at that pace."
According to Credit Suisse, fiscal policy is unlikely to provide a significant boost. Infrastructure investment will likely take time to provide a material uplift to the economy, while some observers may have exaggerated its near-term growth impact.
Based on 2015 budget estimates, Credit Suisse also does not see evidence that fiscal policy next year will be more accommodative.
The recovery of private consumption will continue to be capped by high household leverage, weak rubber and rice prices and contracting employment, Mr Santitarn said.
"We see a downside risk to the central bank's 2014 GDP growth forecast of 1.5%. We're keeping our growth forecast at 1.1%."
Phacharaphot Nuntramas, an analyst at the SCB Economic Intelligence Center, said the economy had possibly bottomed out but remained fragile, especially exports and tourism.
Farm prices are still declining and household debt remains relatively high, putting further pressure on household spending.
"We see the economy in the second half recovering with gradual growth," he said.
