Thai economy to recover, but slowly

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Bangkok cityscape
Bangkok at dawn

Thailand’s sluggish economy is expected to recover from moderate investment activity and continued political uncertainty, but just at a slow pace, according to Moody’s Investors Service.

“In line with the diverging growth path across the ASEAN region, Thailand is picking up from multi-year lows,” Christian de Guzman, vice president and senior credit officer for sovereign risk at Moody’s in Singapore, said on May 24.

Forecasts are that Thailand’s GDP growth will expand by 2.8 per cent in 2016 and 3 per cent in 2017, but risk such as high household debt levels and investors’ reluctance keep weighing on private consumption and manufacturing together with the lack of structural improvements for the country’s export-oriented economy.

But the most critical concern for the economy is political uncertainty, which has affected foreign direct investment for more than a decade.

“From our assessment, the domestic political risk in Thailand is considered the highest among ASEAN countries,” De Guzman said.

“Political uncertainty is weighing on competitiveness whereas other countries such as Vietnam have moved into high-value-added electronics. Thai manufacturing seems to still be centered on lower-value-added electronics and automobiles,” he added.

Back in 2004, Thailand received more than 40 per cent of total foreign investment (FDI) in the ASEAN region. But because of prolonged political instability, its share went on a downward spiral until the present day. Last year alone, total FDI applications between January and November 2015 nosedived 78 per cent year-on-year to $2.64 billion, according to the Thai Board of Investment.

Domestic private investment is also not expected to pick up considerably this year because of slow credit growth, weak global macroeconomic conditions and, again, lukewarm sentiment arising from continued political uncertainty, De Guzman noted.

Meanwhile, official exports from Thailand slipped more than expected in April after two months of growth, Commerce Ministry data showed on May 25. Exports fell 8 per cent, much worse than the median forecast of a fall of 1.25 per cent. Shipments to all major markets dropped, including declines of 10.3 per cent to Japan, 6.7 per cent to the US and 1.1 per cent to Europe. Exports to Southeast Asian countries declined 4.8 per cent, and those to China fell 5.9 per cent from a year earlier.

Tourism is actually the best performing sector in Thailand, with revenues up 18.8 per cent in the first quarter of 2016. However, observers say the reliance of the country on tourism income can quickly backfire in case of terrorist attacks and repeated violence against tourists. And because the lion’s share of tourism revenue is concentrated on just a few certain cities and regions, it is not seen to be a sustainable factor for GDP growth.

A return to civilian rule after an election in Thailand could help the economy considerably, De Guzman says.

“If there was an election next year, this might create a positive factor for the Thai economy, not only for attracting foreign direct investment but also for domestic investment. So the election can help boost that sentiment,” he notes.

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Reading Time: 2 minutes

Bangkok at dawn

Thailand’s sluggish economy is expected to recover from moderate investment activity and continued political uncertainty, but just at a slow pace, according to Moody’s Investors Service.

Reading Time: 2 minutes

Bangkok cityscape
Bangkok at dawn

Thailand’s sluggish economy is expected to recover from moderate investment activity and continued political uncertainty, but just at a slow pace, according to Moody’s Investors Service.

“In line with the diverging growth path across the ASEAN region, Thailand is picking up from multi-year lows,” Christian de Guzman, vice president and senior credit officer for sovereign risk at Moody’s in Singapore, said on May 24.

Forecasts are that Thailand’s GDP growth will expand by 2.8 per cent in 2016 and 3 per cent in 2017, but risk such as high household debt levels and investors’ reluctance keep weighing on private consumption and manufacturing together with the lack of structural improvements for the country’s export-oriented economy.

But the most critical concern for the economy is political uncertainty, which has affected foreign direct investment for more than a decade.

“From our assessment, the domestic political risk in Thailand is considered the highest among ASEAN countries,” De Guzman said.

“Political uncertainty is weighing on competitiveness whereas other countries such as Vietnam have moved into high-value-added electronics. Thai manufacturing seems to still be centered on lower-value-added electronics and automobiles,” he added.

Back in 2004, Thailand received more than 40 per cent of total foreign investment (FDI) in the ASEAN region. But because of prolonged political instability, its share went on a downward spiral until the present day. Last year alone, total FDI applications between January and November 2015 nosedived 78 per cent year-on-year to $2.64 billion, according to the Thai Board of Investment.

Domestic private investment is also not expected to pick up considerably this year because of slow credit growth, weak global macroeconomic conditions and, again, lukewarm sentiment arising from continued political uncertainty, De Guzman noted.

Meanwhile, official exports from Thailand slipped more than expected in April after two months of growth, Commerce Ministry data showed on May 25. Exports fell 8 per cent, much worse than the median forecast of a fall of 1.25 per cent. Shipments to all major markets dropped, including declines of 10.3 per cent to Japan, 6.7 per cent to the US and 1.1 per cent to Europe. Exports to Southeast Asian countries declined 4.8 per cent, and those to China fell 5.9 per cent from a year earlier.

Tourism is actually the best performing sector in Thailand, with revenues up 18.8 per cent in the first quarter of 2016. However, observers say the reliance of the country on tourism income can quickly backfire in case of terrorist attacks and repeated violence against tourists. And because the lion’s share of tourism revenue is concentrated on just a few certain cities and regions, it is not seen to be a sustainable factor for GDP growth.

A return to civilian rule after an election in Thailand could help the economy considerably, De Guzman says.

“If there was an election next year, this might create a positive factor for the Thai economy, not only for attracting foreign direct investment but also for domestic investment. So the election can help boost that sentiment,” he notes.

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