Thailand’s GDP Growth Forecast Raised to 2.3 Percent for 2014

June 25, 2014 Posted by ASEAN Briefing Reading Time: 4 minutes

Thailand is expected to experience 2.3 percent economic growth in 2014, according to a revised forecast by Kasikorn Research Center.

The Bangkok-based research firm, which had originally predicted a growth rate of 1.8 percent earlier this year, has raised its forecast following the May military coup, which put an end to nearly seven months of anti-government protests.

The political turmoil in the lead-up to the military coup had a negative impact on Thailand’s financial stability and economic performance, scaring off foreign tourists, slowing investment into the country and souring business sentiment and consumer confidence. Thailand’s GDP saw its first yearly contraction since late 2011 in early 2014, with Q1 GDP contracting by 0.6 percent year-on-year or 2.1 percent quarter-on-quarter.

The military junta, known as the National Council for Peace and Order (NCPO), quickly implemented a series of measures to boost Thailand’s economy and restore consumer and corporate confidence following the deposition of the government. Since it was formed on May 22, the NCPO has cut diesel prices, expedited the approval of investment projects, accelerated spending and paid arrears of US$3.57 billion owed to around 800,000 rice farmers under a state purchase scheme.

“We expect a quick economic recovery in the second half because of the easing political situation and a resumption of functioning public policy management,” said Paiboon Kittisrikangwan, the assistant governor for monetary policy at the Bank of Thailand (BoT), earlier this month. “Fiscal policy should play a greater role in supporting the economy while monetary policy remains accommodative.”

Although Thailand’s economic outlook seems positive following last month’s military coup, there is still a certain amount of anxiety among analysts regarding whether junta leaders have the relevant expertise to be in charge of particular government ministries and equivalent agencies. The day after its formation, the NCPO announced that Air Chief Marshal Prajin Jantong had been put in charge of the Ministries of Agriculture and Cooperatives, Commerce, Labor and Finance, and Police General Adul Saengsingkaew had been put in charge of the National Economic and Social Development Commission.

For many analysts, this situation echoes the aftermath of Thailand’s last military coup in 2006. “The military government struggled to manage the economy, reflecting the lack of technocratic skills in economic management and administration,” recalled Rajiv Biswas, chief Asia economist at consultancy firm IHS.

There certainly appears to be a large amount of contradictory information emerging about the state of the Thai economy, and predictions regarding rates of economic growth vary widely among various analysts and institutions.

The Ministry of Finance has predicted a growth rate of 2-3 percent in 2014, which is similar to the estimation of 2.6 percent put forward by the Fiscal Policy Office (FPO), which has forecast that Thailand will see growth of 0.4 percent, 2.8 percent and 7.3 percent in the second, third and fourth quarters of 2014 respectively.

The Bank of Thailand (BoT) predicts a much more conservative growth rate than other agencies, having recently adjusted its growth forecast from 2.7 percent to 1.5 percent, predicting a contraction of 0.5 percent in the first half of the year followed by 3.4-3.5 percent growth in the second half. However, the BoT has a much more optimistic outlook for next year, having predicted a growth rate of 5 percent in 2015, up from its original forecast of 4.8 percent.

The general consensus seems to be that the Thai economy will experience sluggish growth in 2014 before improving in 2015. The growth rates for some of Thailand’s key sectors, such as exports and tourism, will also remain slow this year. Thailand’s economy is heavily export-dependent, with exports accounting for approximately 65 percent of the country’s GDP, yet the Commerce Ministry recently reduced its growth forecast for the sector from 5 percent to 3.5 percent.

“Prospects have remained unclear for the export of Thailand’s major agricultural products like tapioca, rice, rubber and shrimp,” said Pimonwan Mahujchariyawong, the deputy managing director of Kasikorn Research Center.

Tourism also contributes significantly to the Thai economy, with a recent report by the World Travel and Tourism Council estimating that travel and tourism constituted 7.3 percent of Thailand’s GDP in 2012, or 16.7 percent when also including the indirect effects of tourism. Months of political disarray has taken its toll on the sector, with the number of foreign tourists dropping by 6 percent year-on-year between January and March.

In their report, Kasikorn Research Center predicted that the tourist industry will improve in the second half of the year, and that the number of foreign tourists visiting Thailand this year will increase by 0.2 percent overall year-on-year. Consequently, tourist revenue is forecast to increase to US$37.1 billion this year, an increase of 2.4 percent from 2013.

In better news, the military coup in May has caused optimism among Thai companies to rise to the highest level since the beginning of 2012. Thailand’s score surged from 41 in Q1 to 91 in Q2 in the latest Thomson Reuters/INSEAD Asia Business Sentiment Index, for which a score of 50 or above indicates an optimistic outlook. 12 out of the 16 Thai companies surveyed said that they saw an increase in new orders and sales in Q2, and the majority reported a positive outlook.

Furthermore, Thailand’s latest consumer confidence index, released at the beginning of June, rose for the first time in 14 months to a reading of 70.7. May’s high score reflected increased optimism about the military junta’s initial steps to revitalize Thailand’s economy.

“The setup of the government is clearer now. At least now we’ve seen a road map from the military about what they’re going to do,” said Rakpong Chaisuparakul, equities strategist at KGI Securities Thailand.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email thailand@dezshira.com or visit www.dezshira.com.

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Political Unrest Weighs on Thailand’s Economy