MAJOR MACRO ECONOMIC INDICATORS

(e) Estimate (f) Forecast

RISK ASSESSMENT

Growth expected to stabilise in 2014 

After a marked rebound in 2012, Thailand’s growth slowed noticeably in 2013.  Since being elected in 2011 and the floods in the same year, the government had introduced a number of measures – notably a 35% rise in the minimum wage and tax cuts for first-time car and home buyers – aimed at stimulating household consumption to reduce the country’s dependence on external demand. These measures led to big increase in household debt (80% of GDP) and their impact is fading, while the country has been hit by weak growth in the advanced countries. The rise in household consumption has slowed, as have exports.
 
Growth is expected to stabilise in 2014. It will still be constrained in particular by household debt. There are, moreover, growing tensions between the government, which wants to stimulate growth and the Central Bank, which favours a less accommodating monetary policy. Besides, the country will continue to suffer from sluggish external demand and particularly from the Chinese slowdown. In addition, the country is facing a labour shortage, which could lead businesses to move their activities elsewhere in Asia, particularly to Myanmar. Although the government’s spending policy is falling behind, ($11.3bn plan), the iron and steel sectors are expected to continue benefitting from infrastructure spending. Tourism from Asia will remain dynamic. However, the raw materials sector (palm oil, rice, rubber and cane sugar) will continue to suffer from falling prices.
 

Satisfactory financial situation

After deepening in 2012, the fiscal deficit has improved slightly in 2013 and is expected to remain stable in 2014. Although some of the stimulus measures are coming to an end, public spending will continue to support activity: infrastructure investment, wage rises, rice subsidy scheme, etc. Despite these measures, public debt is expected to remain sustainable. Thailand’s sovereign default risk should still be contained.
 
Externally, the current account balance will worsen in 2013 and 2104, due to sluggish exports. However, foreign direct investments are expected to grow strongly, as Thailand is still a favoured manufacturing base for the automobile and electronics industries. These steady capital flows should cover most of its financing needs. Nevertheless, the country, like other emerging countries, is suffering from the effects of the US Federal Reserve’s announcement of an exit strategy for Quantitative Easing III. As a result, the Baht fell against the dollar by 11% between the end of April and the beginning of September 2013. A depreciation of this scale raises the cost of servicing debt denominated in foreign currency (36.6% of GDP) but equally makes exports more competitive.
 
Finally the comfortable level of foreign exchange reserves (6.8 months of imports in 2013) provides the country with a satisfactory ability to resist sudden capital flight. Meanwhile, despite persistent shortcomings in terms of supervision, the Thai banking sector has become stronger in recent years: fewer non-performing loans, improved solvency and profitability ratios. In addition, despite high household debt levels, the volume of non-performing loans remains unchanged.
 

Persistent internal divisions 

 Yingluck Shinawatra, prime minister since the victory of the Pheu Thai party in the early elections of July 2011, is still confronted by a deeply divided society and her populist measures are sharply criticised by the Democratic Party. Deep internal political divisions between Thaksin supporters and those of Democratic Party are expected to remain and the rift could intensify as the succession of King Rama XI approaches. Finally, the Pheu Thai party’s attempts to change the constitution to allow the return of Thaksin (brother of the current Prime Minister) could reignite the tensions. A reconciliation process is under way, involving, particularly, Tony Blair, but the opposition has boycotted the process saying it will not participate in the discussions if an amnesty for Thaksin is discussed.