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Four Reasons Why Economists are Sceptical about Thailand

Downtown Bangkok, Thailand

Downtown Bangkok, Thailand

 

BANGKOK – The good news for Thailand: it has just escaped the mini-recession it suffered earlier this year, notching annual gross domestic product growth of 2.7 per cent in the third quarter, according to numbers published on Monday.

What’s more, it turns out it never even went into recession after all: it has revised its second quarter numbers upwards, so that it registered zero quarter-on-quarter GDP growth rather than a 0.3 per cent fall.

Now the bad news: many analysts have reacted sourly to the latest data from southeast Asia’s second-largest economy, which is a bellwether of global demand for manufactured goods and is forecast by Barclays to grow at 3 per cent this year and 4.8 per cent next.

Here are four reasons why economists are down on an emerging market growth story that superficially looks solid enough – particularly when compared with some of its spluttering western peer.

1. Growth is being buoyed partly by falling demand for imports, which Tony Nafte, CLSA Asia-Pacific Markets senior economist, calls “a sign of weakness not strength”, since it reflects a slump in domestic demand. Household consumption dropped 1.2 per cent in the third quarter, reflecting the end of a popular tax break on new car purchases. CLSA estimates that if imports had held up during July to September, instead of declining, it would have wiped out quarter-on-quarter GDP growth of 1.3 per cent. As bank lending to individuals falls and the central bank presses to bring down household debt levels standing at about 80 per cent of GDP, it’s hard to see an immediate recovery in consumer spending.

2. Good news on exports isn’t quite as great as it might appear. While net exports of goods and services from Thailand’s hard disc-to-cars manufacturing sector soared 18.6 per cent in the third quarter, this was on the back of a 6 per cent decline the previous quarter – and in the context of a longer-term recovery from the damage caused to many factories by the 2011 floods. What’s more, economists say exporters in Thailand – many of which are not at the cutting edge technologically and logistically – remain vulnerable to weakening global demand, domestic capacity constraints and the development of sleeker products elsewhere. ANZ bank points also to the warning sign of six successive months of industrial contraction registered between April and September: a sign of problems ranging from concerns about a new beer tax levy, to an outbreak of a virulent shrimp disease.

3. Another trend propping up Thailand’s continued economic expansion is higher government spending. Prime Minister Yingluck Shinawatra’s administration has spread around money on a multibillion-dollar rice subsidy scheme and a government pay bill that rose almost 8 per cent in the third quarter. While Thailand has plentiful foreign exchange reserves, the largesse is proving expensive, with the rice programme alone costing $4bn a year by official estimates and almost twice as much according to some critics. The bind for the government is that there doesn’t seem an easy way out of this ad hoc stimulus programme, particularly as investment dropped 6.5 per cent during the third quarter. As Capital Economics puts it: “With the private sector struggling, the onus is on the government to spur growth.”

4. Thailand’s apparently incurable political malaise has returned, with a wave of street protests this month reminding people of the 2010 battles that paralysed parts of Bangkok for two months. The Senate’s decision last week to throw out an amnesty bill that could have allowed the return to Thailand of fugitive ex-prime minister Thaksin Shinawatra – Ms Yingluck’s brother – has cooled the situation a little for now, but many observers expect the next round of this 12-year-old political battle to start soon. Even before the latest flare-up, political fights had held back a 2tn baht infrastructural investment bill. Many people across the political spectrum agree Thailand urgently needs better roads, railways and ports, especially if it is to realise its vision of becoming a hub for trade between China and the 10 southeast Asian countries that make up the Asean grouping. But the opposition Democrats say the Yingluck government’s strategy for how to do this is ill-directed and should be subject to much greater parliamentary oversight. By Michael Peel in Bangkok

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