Economic slump could last 5 years

Economic slump could last 5 years

Former BoT chairman sounds downbeat note

Virabongsa Ramangkura, former chairman of the Bank of Thailand, predicts the economy will remain in the doldrums until 2020. (Bloomberg photo)
Virabongsa Ramangkura, former chairman of the Bank of Thailand, predicts the economy will remain in the doldrums until 2020. (Bloomberg photo)

It could take at least five years for the Thai economy to get through the current vicious cycle, says former central bank chairman Virabongsa Ramangkura.

He said pessimism had scaled back hopes of a full rebound next year, with the Thai economy expected to make a U-shaped upturn.

"If it's a cycle, a slowdown period will take five years and a growth period will last five years," said Mr Virabongsa, also a former finance minister.

"During the slowdown duration, illusions that the economy is picking up emerge sometimes, but it grows a little bit before turning down again."

Dismal exports, low inflation and a slump in goods prices have taken a toll on the country's economy, and the current conditions could cause a shortfall in the Finance Ministry's revenue target.

The Asian Development Bank has painted a gloomier picture for next year, cutting its growth forecast to 2% from an earlier 4% -- well below the Bank of Thailand's 2016 forecast of 3.7%.

Mr Virabongsa applauded Deputy Prime Minister Somkid Jatusripitak's economic stimulus measures as the right approach for coping with the economic situation but cautioned the stimulus effects could be short-lived.

Mr Somkid's policy focuses on two issues: public spending to stimulate the economy and tax cuts.

Charl Kengchon, managing director of Kasikorn Research Center, said too many variables would determine whether the economic recovery takes five years.

But he noted similar concerns had been raised by economists about the country's competitiveness and structural problems.

The latest economic team has been attempting to address short-run issues through stimulus measures while at the same time upgrading Thailand's competitiveness in the middle and long terms through policies related to industrial clusters and logistics.

But it will take time for private-sector investment to stream into the planned clusters, as potential investors have questions about infrastructure, human resources and development, Mr Charl said.

Other countries in Asean have been experiencing their own economic problems, and China's slowdown has taken a toll on regional economies.

Thailand's annual economic outlook of below-4% growth is a less-than-ideal "new normal" since public and private debt will not diminish if the country's growth ratio is too low, Mr Charl said, adding that the US Federal Reserve's looming rate hike could also lessen financial liquidity in Thailand.

He said Thailand's economy had already bottomed out and a U-shaped recovery was expected, but China's woes and the Fed hike were external downside risks.

According to TMB Analytics, Thailand's economic momentum will gain steam in the fourth quarter, propelled by public expenditure and fiscal disbursement, while next year's growth impetus will be jump-started by government infrastructure spending.

Benjarong Suwankiri, a TMB Bank senior vice-president and the head of TMB Analytics, said GDP in the fourth quarter could expand by 2.8% year-on-year and 1% quarter-on-quarter on the strength of the government's new stimulus measures, public spending and seasonal activity in the tourism industry.

"It [the final quarter's economic growth] could be a turning point in setting the tone for next year's economy," he said.

The government's stimulus measures, which assist rural residents battered by low farm prices and provide soft loans to small and medium-sized enterprises, are projected to boost GDP by 0.3 percentage points this year and have a carry-on effect for next year, Mr Benjarong said.

He said the recent property stimulus would mainly make an impact on the housing sector, with overall effects to the economy unlikely due to an oversupply in the property segment.

TMB Analytics forecasts Thai economic growth of 2.7% this year, down from 3% projected earlier, with a 5.5% contraction in exports.

Thai shipments could decline further in the September-November period due to China's weak trade data and domestic consumption, Mr Benjarong said.

TMB Analytics expects the Thai economy to expand by 3.5% next year, driven mainly by infrastructure investment, stimulus measures, tourism expansion and knock-on effects for private investment from increased public spending.

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