Thailand could face recession in first half of 2014

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tuktuk driversThailand’s first-half economic growth in 2014 may stagnate or decline from last year’s fourth quarter on the slowdown in domestic economic activity, says a senior Bank of Thailand (BoT) official. Spokeswoman Roong Mallikamas said most recent indicators have shown a decline in the domestic market. But financial institutions, especially commercial banks whose liquidity is still good, given their high capital reserve provide a “strong buffer” cushioning the impact of slowing domestic consumption and stalling private investment.

The economy has begun to show marginal growth since the fourth quarter at 0.6 per cent quarter-on-quarter and year-on-year after political tensions flared in October 2013, subsequently denting domestic consumption, tourism growth and private investors’ confidence. Most economists and think tanks have cut their growth projections. The Bank of Thailand lowered its annual projection from 4.8 to 2.7 per cent.

On top of that, central bank governor Prasarn Trairatvorakul recently warned the country could slip into a recession in the first two quarters. Although a business sentiment index survey showed improvement in exports on the back of improved global demand, it is not enough to compensate for the drop in others areas of the economy, Roong said.

“However, gradual global economic recovery could help drive economic growth to a certain degree as domestic concerns still remain,” she added.

An absence of a functioning government beyond the second half and delays in next year’s fiscal budget disbursement further than the first quarter of 2015 could hit investors’ confidence and increase downside risks, she argued.

Roong said consumers’ confidence is expected to rebound in the third quarter if a functional government is installed in the middle of this year. Although inflation has edged up minimally with headline inflation rising to 2.11 per cent year-on-year in March 2014, the central bank said it is not a major concern since the main cause of the hike is higher energy prices leading to a rise in the price of processed food. Swelling household debt, increasing to 82.3 per cent at the end of 2013 from 77.3 per cent at the end of 2012, is considered a “normal situation” amid the current economic slowdown causing a dip in consumers’ income, Roong said.

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Reading Time: 2 minutes

Thailand’s first-half economic growth in 2014 may stagnate or decline from last year’s fourth quarter on the slowdown in domestic economic activity, says a senior Bank of Thailand (BoT) official. Spokeswoman Roong Mallikamas said most recent indicators have shown a decline in the domestic market. But financial institutions, especially commercial banks whose liquidity is still good, given their high capital reserve provide a “strong buffer” cushioning the impact of slowing domestic consumption and stalling private investment.

Reading Time: 2 minutes

tuktuk driversThailand’s first-half economic growth in 2014 may stagnate or decline from last year’s fourth quarter on the slowdown in domestic economic activity, says a senior Bank of Thailand (BoT) official. Spokeswoman Roong Mallikamas said most recent indicators have shown a decline in the domestic market. But financial institutions, especially commercial banks whose liquidity is still good, given their high capital reserve provide a “strong buffer” cushioning the impact of slowing domestic consumption and stalling private investment.

The economy has begun to show marginal growth since the fourth quarter at 0.6 per cent quarter-on-quarter and year-on-year after political tensions flared in October 2013, subsequently denting domestic consumption, tourism growth and private investors’ confidence. Most economists and think tanks have cut their growth projections. The Bank of Thailand lowered its annual projection from 4.8 to 2.7 per cent.

On top of that, central bank governor Prasarn Trairatvorakul recently warned the country could slip into a recession in the first two quarters. Although a business sentiment index survey showed improvement in exports on the back of improved global demand, it is not enough to compensate for the drop in others areas of the economy, Roong said.

“However, gradual global economic recovery could help drive economic growth to a certain degree as domestic concerns still remain,” she added.

An absence of a functioning government beyond the second half and delays in next year’s fiscal budget disbursement further than the first quarter of 2015 could hit investors’ confidence and increase downside risks, she argued.

Roong said consumers’ confidence is expected to rebound in the third quarter if a functional government is installed in the middle of this year. Although inflation has edged up minimally with headline inflation rising to 2.11 per cent year-on-year in March 2014, the central bank said it is not a major concern since the main cause of the hike is higher energy prices leading to a rise in the price of processed food. Swelling household debt, increasing to 82.3 per cent at the end of 2013 from 77.3 per cent at the end of 2012, is considered a “normal situation” amid the current economic slowdown causing a dip in consumers’ income, Roong said.

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