Thailand Economic Growth to be Curtailed in 2015, 2016 to be Brighter

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By Edward Barbour-Lacey

Thailand’s central bank and HSBC have both lowered their growth forecasts for Thailand in 2015. However, both banks have raised their economic outlooks for 2016. In 2014, Thailand’s economy grew at its slowest pace in three years and has failed to recover so far this year.

The central bank of Thailand has cut its 2015 growth forecast to 3.0 percent from its previous level of 3.8 percent. Chief among the reasons for the growth downgrade were declining exports and falling consumer prices. According to the finance ministry’s head of fiscal policy, Krisada Chinavicharana, “Thai exports face limitations this year because of the uncertainty in the global economic recovery, especially with China’s slowdown…We expect the economy to pick up in the second half because of government spending.”

The bank has been careful not to use the word “deflation” despite the fact that the consumer price index is expected to contract 0.5 percent this year instead of growing the 0.2 percent the bank had predicted in March. In its official statement, the bank stated that “[the probability of inflation] is still low as consumption still expands, prices of most of goods and services continue to be flat or increase, and inflation expectations remain near the policy target.”

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Additionally, the central bank also lowered its 2015 forecasts for headline and core inflation to -0.5 percent and +1.0 percent respectively, from its previous predictions of +0.2 percent and +1.2 percent.

HSBC has also lowered its 2015 economic growth forecast for Thailand to 3.1 percent from its previous level of 3.6 percent. The bank has cited similar reasons for this recalculation as the central bank: a weak economic recovery and persistent negative risks for exports due to low demand in East Asia.

An additional reason for the two growth downgrades has been the persisting political uncertainty around the schedule for the next election and enactment of a new constitution. In May 2014, Thailand underwent a military coup led by General Prayut Chan-o-cha. The coup had a serious effect upon the economy – before the coup, Thailand’s central bank had issued a growth forecast of 5.5 percent. If all goes smoothly in the next few months, the country should see its growth improve, however, prolonged uncertainty could have substantial negative effects on the economy.

Both Thailand’s central bank and HSBC are more sanguine about 2016. The central bank has increased its forecast to 4.1 percent from 3.9 percent despite admitting that there was the possibility of “downside risks.” However, the bank has also lowered its projection for the country’s export growth for the next year from 4.0 percent to 2.5 percent. Headline and core inflation forecasts were also lowered from +2.2 percent and +1.2 percent respectively, to +1.6 percent and +1.0 percent.

While not as optimistic as the central bank, HSBC has also raised its 2016 economic growth projection to 3.3 percent from 3.1 percent.

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Thailand will continue to struggle to improve its economy unless it can ramp up its infrastructure spending and find a way to jumpstart exports. The government has promised an increase in spending, but this has yet to appear, and, with a slowing China, increasing exports will be an uphill battle. It remains to be seen if Thailand will be able to fight its way out of the political and economic quagmire it has found itself in.


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