Warning over labour act risks

Warning over labour act risks

Caution on threats to economic recovery

Workers at an infrastructure construction site in Bangkok. NATTAPOL LOVAKIJ
Workers at an infrastructure construction site in Bangkok. NATTAPOL LOVAKIJ

An executive decree to regulate the employment of migrant workers and potential delays in the government's big-ticket infrastructure investment could drag on Thailand's economic growth momentum in the second half, economists caution.

"The tighter regulations on migrant labour that were recently announced could pose a threat to the economic recovery in the second half of this year," said Chaleampong Kongcharoen, a lecturer at the Faculty of Economics, Thammasat University.

The regulations could affect production in the manufacturing sector in the short-term while its effects on the economic growth will need further assessment, he said.

The executive decree on migrant workers, which took effect last month, prompted workers from Cambodia, Myanmar and Laos to return home fearing punishment.

Anxious over manpower shortages, Prime Minister Prayut Chan-o-cha responded by invoking Section 44 of the interim charter to defer full implementation of the decree until next year.

Mr Chaleampong's comments underscore a recent comment by the Bank of Thailand's rate setting panel, saying risks to the country's economic growth skew to the downside, both from external and internal factors, though the committee in last month's meeting raised its forecast for Thailand's GDP growth this year to 3.5% from the 3.4% estimated in March. The country's economy in the first quarter expanded at the fastest pace in three quarters, driven by recovering exports, an improving farm sector and rising private consumption, at 3.3% year-on-year.

He forecast that Thai economic growth would come in at 3.6% this year, underpinned by a strong recovery in merchandise exports, which are expected to grow 4.7%.

The clearer economic indicators seen among Thailand's major trading partners such as the US, China, Japan and Europe are forecast to help support the recovery in exports for the remainder of the year, said Mr Chaleampong.

Government spending and investment will be important growth drivers for the rest of the year, but risks regarding delays for some infrastructure projects remain.

"If the government can't implement these projects as planned, Thailand's growth could be 3.4% this year," he said.

Mr Chalermpong said that private investment would grow 3.2% this year, mainly bolstered by export related sectors, while investment in construction is expected to remain sluggish.

"While external risks have somewhat subsided, domestic risks concerning the government's ability to implement the planned infrastructure projects remain," said Luxmon Attapich, the Asian Development Bank's (ADB) senior economist for Thailand.

She said the delay in these projects could weaken investor confidence in the Thai economy and slow down private investment.

"Investors are aiming high for government investment projects such as the Eastern Economic Corridor, so the implementation is crucial to help support growth in private investment," said Mrs Luxmon.

She also voiced concerns that the regulation of migrant workers reflected bigger structural issues in the Thai labour market rather than just short-term effects on the economy.

"Thailand's already lost its competitiveness in terms of wages and the country is already ushering in an ageing society, so the issue of labour shortages should be addressed as it might pressure productivity and growth in the long-term," said Mrs Luxmon.

The Manila-based multinational lender recently raised its forecast for the region to 5.9% from 5.7%, on the back of stronger-than-expected export demand, while it revised up its 2018 growth forecast.

The ADB has maintained its forecast for Thai economic growth at 3.5% this year and 3.6% next.

Pornsilp Patcharintanakul, vice-chairman of the Thai Chamber of Commerce, said that the stronger baht in recent times has only had a small impact on Thai exports, but a lack of competitiveness will pressure the sector's long-term growth.

"Thai merchandise exports could face a long period of slowdown going forward regardless of the currency's movement if the sector has not yet improved its efficiency and innovation," said Mr Pornsilp.

He said that sector will also face risks regarding the US trade protectionism, which could be implemented via an anti-dumping law rather than higher tariffs.

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