Thailand’s central bank cut this year’s growth forecast nearly by half to 1.5 per cent but sees a much brighter 2015 as the new military government tries to reinvigorate the economy after prolonged political turmoil.
While slashing this year’s growth projection from the 2.7 per cent seen in March, the BOT raised next year’s growth forecast to more than 5 per cent, compared with 4.8 percent.
Paiboon Kittisrikangwan of the BOT told a news conference that following that first-quarter shrinkage, the central bank internally cut its 2014 forecast to below 1 percent. “But after May (Around the time the Coup took place) we have revised our projection again because there is a chance that the economy will grow fairly fast in the second half, starting from the second quarter.”
The Central Bank monetary policy committee voted 7-0 to keep the one-day repurchase rate ECI unchanged at 2.0 percent. The rate had been cut by 25 basis points in November and again in March.
“Following a significant reduction of political uncertainties, the economy should benefit from improving public and private spending,” the central bank’s Monetary Policy Committee said, adding that recovery should pick up pace given “resumption of functioning public policy management.”
The central bank is counting on the military government to get long-delayed state spending under way and jack up battered domestic demand.
(Up-Dated) Barron Emerging Market reports: (source)
By Shuli Ren
“As expected, the Bank of Thailand kept its benchmark rate on hold at 2% today, amid signs that the worst phase of the political crisis in Thailand is over. Thailand’s military launched a coup on May 22. The Bank of Thailand reduced its growth forecast for 2014, from March’s 2.7% to 1.5%, but expects Thailand to turn for the better in the second half this year and grow above 5% next. A better economy reduces the pressure on the bank to further cut interest rates this year, according to Capital Economics analyst Krystal Tan. “Fiscal spending already looks to be getting back on track,… [and] the army takeover has unlocked fiscal spending and eased pressure on the BoT to further loosen monetary policy to support the economy.” added Tan. Barclays second the view, saying “the current rate cut cycle is over.”
“The “above 5%” 2015 growth forecast is perhaps too immature, countered Nomura Securities, which re-iterated their more bearish 2014 and 2015 growth forecasts of 1.1% and 3.3%: We think the MPC is banking too much on the political outlook which, as demonstrated over the past several months, is difficult to predict, and in our view, is still quite precarious. We remain sceptical that the short-term impact of the junta‟s measures will be limited, which seems to be consistent with the BOT‟s new 2014 growth forecast.”
All of Thailand’s consumer and business confidence figure sees significant pick-up. However, latest bank lending report sees sluggish condition and earlier, the Central Bank issues a warning that Thailand’s house-hold debt was alarming. Also the latest from Thai economist point to Thailand’s large SME business sector greatly weakened from a variety of factors and the exodus of massive numbers of migrant workers out of Thailand, both as emerging new significant risk to Thailand’s recovery. Additionally, Thailand’s farm sector, such as rice growing, has traditionally been where economic stimulus package has been targeted. However, the junta government has cut most subsidies, leaving a significant part of Thailand’s population financially greatly weakened.
JP Morgan said “We think further easing from the BOT looks unlikely at this point; the emphasis will now be on fiscal policy kicking into gear.” Most analysts do not see a rate change this year assuming the economy stabilizes, and some expect a rate rise in 2015 if Thailand regains velocity, leading to stronger inflationary pressures.
Latest inflation figure sees inflation significantly picking up, prompting the military government to put a price freeze on some 100 to 200 essential consumer goods. Instability in global energy producing region have seen energy price edge up, where Thailand is highly dependent on oil import.
The central bank noted there are “downside risks” from a slow recovery in exports and tourism. Both activities are pivotal for Thailand’s economy. Exports, which account for more than half of gross domestic product, have remained sluggish while tourism – accounting for about 10 percent of the economy – has been battered by political tensions.
In May, tourist arrivals fell about 11 percent from a year earlier, but industry executives say June will show an improvement, helped by the lifting of curfews the army imposed. “After the curfew lifting, online bookings in tourist towns in such as Krabi and Phuket have risen by 5-10 percent and that’s a good sign,” said Pornthip Hirunkate, vice president of the Tourism Council of Thailand.
Latest global manufacturing figure shows manufacturing activity of advance western countries very strong and manufacturing activity of emerging markets weak. Latest Thai manufacturing sentiment figure sees a significant pick-up.
When seizing power, the army said it needed to restore order and confidence after months of political unrest and tension. The junta has announced measures it hopes will get the sputtering economy going again, a bid to restore order and business confidence after months of political unrest hurt consumption and investment.
Thailand’s investment agency said on Wednesday it approved applications for 18 projects worth about 120 billion baht ($3.7 billion), mainly in the auto industry, at its first board meeting after the May 22 military coup. The largest approval was for Toyota Motor Corp., which plans to spend 51.5 billion baht for production of pickup trucks and parts, the Board of Investment (BOI) said in a statement. Wednesday’s meeting was chaired by the junta’s leader, Gen. Prayuth Chan-ocha.
Thailand is a regional vehicle production and export base for the world’s top car manufacturers. Domestic auto sales in Thailand tumbled 38 percent in May from a year earlier, the Federation of Thai Industries said on Wednesday.
The projects endorsed on Wednesday are among big applications awaiting approval. The military government said early this month that backlogged applications for local and foreign investors to invest more than $21 billion would be acted on within two months.
The total value of investment applications fell 42 percent to 308 billion baht in the first five months of this year from a year earlier. Within that, foreign investment requests dropped 10 percent to 230 billion baht. The junta has announced investment measures it hopes will get the sputtering economy going again. It is seeking to fast-track infrastructure spending; some US$100 billion over the next seven years, where the infrastructure spending plans by the previous government has been derailed by the political crisis.
However, the latest from the junta government is that many spending plans from the previous government is under review or have been canceled and other new investments, such as the mobile 4G auction have also been delay; all adding up to significant negate of investments and spending.