Bangkok--28 Jul--SCB
Thailand's domestic demand recovery to support 1.6% GDP growth in 2014. In its third-quarter economic forecast, Siam Commercial Bank’s Economic Intelligence Center (EIC) maintains its projection that Thailand's GDP will grow by 1.6% in 2014, as recovering domestic demand compensates for lackluster growth in exports. Positive factors in Thailand's domestic economic outlook are:
1) Greater political stability following the coup in late May, which has clearly lifted private sentiment from its long slump,
2) The government's acceleration of capital spending and prioritization of infrastructure investment plans, and
3) Government support to farmers via payments due under the rice mortgage scheme and to SMEs by encouraging commercial banks to increase lending. Yet the ongoing domestic demand recovery faces two partial constraints:
1) Any increase in private consumption will be slowed by high levels of household indebtedness coupled with income growth that lags rising costs, and 2) Possible delays in some government disbursements resulting from extra scrutiny by the junta-installed panel that will monitor the state budget and by the "superboard" monitoring state enterprises, although these committees will improve transparency.
EIC estimates Thai exports will grow by just around 1%, a much lower rate than previously forecast. This is due to 1) Lower world prices for farm goods and commodities, 2) Slower demand from emerging markets, which has eroded exports of electronics, electrical appliances and cars, 3) A structural change in the value of car exports related to the increasing proportion of low-priced eco cars, and 4) Growing outmodedness of computer parts and certain consumer electronics that account for at least 7% of total Thai exports. EIC forecasts that Thailand's exports will speed up in the second half of 2014, growing by approximately 1% this year.
EIC expects that the Thai baht will weaken to 33 baht per dollar by year-end, even though the currency has appreciated recently due to increased political stability. The factors depreciating the Thai currency in the second half of this year are: 1) Capital outflows from emerging markets due to the likelihood that the U.S. Federal Reserve Bank will hike its key interest rate sooner than anticipated, 2) Potential that the Bank of Thailand's policy rate will be held steady at 2% throughout the year's second half which is significantly lower than others countries in the region, and 3) The pace of export recovery remaining too slow to boost the trade account.
By: Ms. Sutapa Amornvivat
Chief Economist and FEVP, Siam Commercial Bank