Buoyed by a rise in consumer spending, Thailand narrowly avoided a technical recession thanks to a surprise upswing in the second quarter. The new government is hoping this shift, combined with its own plans to increase public spending across key sectors, will help entice investors.
The economy notched up growth of 0.4% year-on-year (y-o-y) in the second quarter, after contracting by 1.9% in the first quarter of 2014, according to the Bank of Thailand (BoT). Real GDP is expected to grow at close to the central bank's forecast of 1.5% this year as improved consumption helps offset weak exports and tourism, the governor of the BOT, Prasarn Trairatvorakul, told local media on Sept. 22.
The National Legislative Assembly recently approved a draft $80bn budget for 2015, up by around 2% on 2014’s total, in which key sectors, including education, transport, defence and agriculture, saw their allocations given a boost. Hopes are rising that the initial signs of recovery could take hold in the coming months, although the full impact of the budgetary boost is unlikely to be felt until well into 2015.
Open for business
Air Chief Marshal Juntong told an investment conference in Bangkok in August that Thailand was “back to normal” after the political crisis earlier this year. “Our goal is to revitalise Thailand’s strength as a market-based open economy that is investor friendly,” said Marshal Juntong, who was in charge economic policy at the time and has now been appointed transport minister, quoted in the Financial Times.
General Prayuth Chan-ocha was voted in as prime minister by Parliament on August 21, and the government is now expected to increase its focus on economic issues and move away from political matters. Juntong said a new National Reform Council would push developments including sea ports, greatly increased airport capacity and new fibre-optic connections to Europe, the US and large Asian countries, according to the report.
Transport, information and communications technology, energy and investment, are also at the top of the agenda. The junta’s $75bn eight-year infrastructure plan would include constructing a 1.4-metre-gauge rail network to link the country to neighbours including China. The Ministry of Education was allocated BT498.16bn ($15.4bn), a 3.2% increase from last year's budget and 19.5% of the total budget allocations. Prayuth has called for education reforms as part of his plans to reshape the country and restore political stability. Defence spending, meanwhile, rose 5% y-o-y to BT193.07bn ($6.0bn).
Reigniting the economy
A more favourable outlook has prompted the BOT to decide against lowering its key rates further. The BoT last moved on rates in March, when it cut the main lending benchmark to 2%. The decision was widely seen as an attempt to galvanise Thailand’s economy, with the bank indicating in August that its monetary policy committee could introduce further cuts if needed. However, the bank has been keen to maintain a balance between rising levels of household debt, estimated at around 80% of GDP, and making loans too readily accessible.
The new government is keen to reassure investors that it can reverse an overall slowdown in the economy. But official data at the end of August showed that Thailand's manufacturing production index fell for the 16th consecutive month in July, as political uncertainty is still weighing on production. Meanwhile exports declined 0.85% y-o-y while imports contracted 2.86% y-o-y in July.
"If export growth stays weak, there could be negative impacts on Thailand's domestic demand, including delays in business investment to expand existing capacity, and weaker consumption spending," said Nalin Chutchotitham, an economist at HSBC, quoted in The Wall Street Journal. "The government must continue with measures to boost exports."