Economic growth in the first quarter may contract compared with the previous quarter as there are solid signs of a downturn, but a recovery in exports and tourism is expected to revive momentum in the second quarter, says a senior Bank of Thailand official.
The sight of travellers and job seekers sleeping on benches at Mor Chit bus terminal has become commonplace. Thailand’s unemployment rate, at a decade-high, rose to 0.9% in January from 0.7% a year before. Sayant Pornnantharat
Declining domestic demand has depressed business operations, resulting in a decade-high unemployment rate.
Mathee Supapongse, the central bank’s senior director of macroeconomic and monetary policy, said the economy’s contraction in the first quarter was expected by the central bank, though it anticipates improvement in the latter half of the year.
“Thai economic growth in the second quarter is expected to improve thanks to an exports recovery and a boost in the tourism industry, given that the emergency decree has been lifted and the political tension has not escalated,” he said.
Further assessment of other indicators, such as the unemployment rate and export growth, have to be made apart from quarterly GDP growth.
Annual exports contracted 0.2% last year, while the jobless rate rose to 0.9% in January from 0.7% a year before, as unemployment in the industrial sector rose more than expected.
The private consumption index fell 2.5% year-on-year in February, down from a 1.5% contraction in January, and the tourism sector contracted 8.1%, down from a 0.1% dip in January.
However, Mr Mathee remains optimistic the Thai economy can grow 2.7% this year because domestic consumption and private investments maintained their levels the previous two months. The central bank cut its growth projection for this year from 4.8% to 2.7% because of the ongoing political divide posing greater downside risks to the economy.
“If the country has a functional government in place for the second half of this year, confidence in business will be restored and public spending will resume. Investment will also be improved,” said Mr Mathee.
Export growth of 4.5% this year is possible if monthly exports can grow by US$19.6 billion, said Mr Mathee, adding export growth is seasonally adjusted so the growth rate has to be observed quarter-by-quarter. Merchandise exports grew 2.2% last month, up from a 1.5% contraction in January thanks to improving global demand.
Household debt per GDP is expected to rise only slightly because consumer loans have declined substantially and the unemployment rate remains below 1%, he said.
The current account registered $5.06 billion last month, up from $263 million in January. The massive current account was attributed to a trade surplus following a gain in exports and sharp drop in imports.
The capital account recorded a deficit at $4.1 billion, down from January’s gain of $225 million because financial institutions repaid short-term foreign currency loans, foreign investors reduced their Thai investment portfolio, and Thai investors increased their debt securities holdings abroad.
The overall balance of payments in February posted a deficit of $884 million, compared with a surplus of $575 million a month earlier.
Kasikorn Research Center (K-Research) anticipates political unrest might drag down consumption demand through the second half of the year, resulting in consumption growth of only 0.1% this year, down from 1.4% forecast earlier.
The research house added the government is unlikely to finish the 2015 annual budget before the next fiscal year begins in October, causing government spending to crater in the fourth quarter this year.
K-Reseach trimmed its economic growth forecast for its base case scenario to 1.8% from 3% projected in January, with a projected range of 1.3% to 2.4% assuming a vague recovery in consumption and investments. The worst case scenario is a contraction of 0.2% to 0.6%, while the best case scenario is 2.4% growth.