BoT chief warns of recession

BoT chief warns of recession

Rebound likely from third quarter of 2014

Thailand is facing the risk of recession for the first two quarters, but the situation is not worrisome, as the economy is likely to rebound from the third quarter, says the Bank of Thailand chief.

"Economic growth in the first quarter contracted compared with last year's fourth quarter, but whether the country will slip into recession depends on the second quarter's growth," said central bank governor Prasarn Trairatvorakul.

"If economic growth continues to shrink in the second quarter, it will be recession. We should not give much weight to the technical recession. It's not a worry if it's a case of unemployment remaining low and businesses continuing to run, as the economy in the third and the fourth quarters could pick up."

Recession is defined as a contraction in gross domestic product (GDP) for two consecutive quarters.

GDP during the last quarter of 2013 expanded by a mere 0.6% both quarter-on-quarter and year-on-year and the full-year growth came in at 2.9%, as the political tensions that flared up late last October bit into the economy.   

The central bank late last month trimmed the GDP growth forecast to 2.7% from 3% this year due to greater downside risks to the economy prompted by months of political unrest.

The Asian Development Bank yesterday warned Thailand's GDP will expand by less than 2% if a functioning government is not formed by the end of the third quarter.

Mr Prasarn said the monetary policy easing could boost consumer and investor confidence, but its efficiency was constrained amid the current situation and would not solve the problem immediately.

The Bank of Thailand's rate-setting committee by a narrow vote of 4 to 3 decided to slash the policy rate by a quarter percentage point to 2% on March 12 to provide a buffer to downside risks to growth.

He also commented that retail loan growth had fallen to 9-10% from 15% due to consumers' increasing prudent spending and stringent loan approvals.

In a related development, Fitch Ratings warned that rising household debt is a threat to banks' asset quality, particularly if conditions worsen.

"However, we believe that banks remain reasonably positioned to weather the challenges of a more difficult operating environment as long as the downturn is not prolonged or more severe than expected," the credit rating agency said.

Household-debt-to-GDP rose to 82.3% at the end of 2013, from 77.3% at the end of 2012. The pace of growth has slowed, with household debt rising by only 11.4% in 2013.

Fitch Ratings expects the pace of household leverage to slow further in 2014 due to the expiration of the first-time car buyer scheme, slower economic growth and a more cautious lending environment.

The car-tax incentive programme expired at the end of 2012, but deliveries and related lending continued well into 2013.

Asset quality at state policy banks would be more vulnerable in weaker economic conditions, as they lend to lower-income households.

State policy banks funded 29.5% of household loans at the end of 2013.

But any deterioration in credit profiles would not directly affect their support-driven ratings, which are linked to the sovereign credit profile.

Vulnerabilities are also accumulating in less-regulated entities such as non-bank financial institutions and savings cooperatives, which provided 28% of household credit in 2013.

Capital Nomura Securities economist Nuchjarin Panarode predicts the Monetary Policy Committee will further trim the benchmark rate by 25 basis points this quarter to 1.75% before jacking up the rate in the next one and a half to two years when the economy picks up and the political situation improves.

The research house also forecast GDP growth in the first quarter of 0.8%, but there is downside risk, Ms Nuchjarin said, adding that downward revisions for the second quarter and the full year are on the cards due to prevailing political uncertainty.

Do you like the content of this article?
COMMENT (1)