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Thailand Finance Ministry Cuts 2014 Growth Forecast to 2.6%

Thai gross domestic product could shrink by 2 per cent this year if a government is not in place by the second half.

Thai gross domestic product could shrink by 2 per cent this year if a government is not in place by the second half.

BANGKOK – Thailand’s Finance Ministry sharply cut its growth forecast for 2014, citing the spillover effects from months of political unrest.

The country’s economy is projected to expand 2.6%, down from the 4% forecast in December, Somchai Sajjapongse, director general of the ministry’s fiscal-policy office, said at a press briefing Monday.

Protests aimed at forcing out Prime Minister Yingluck Shinawatra, now in their fifth month, have damped domestic demand and eroded business confidence, Mr. Somchai said. Thailand’s Constitutional Court last week added to the political uncertainly by voiding the Feb. 2 general elections.

“The political unrest has spread to the country’s real economy,” Mr. Somchai said.

The ministry’s growth forecast revision is in line with that of the Bank of Thailand, which last week lowered its growth forecast for gross domestic product to 2.7% from 4%. The Southeast Asian country recorded 2.9% economic growth in 2013.

Credit-rating firms have warned they may cut Thailand’s economic outlook this year if the political conflicts aren’t resolved, Mr. Somchai said. The country’s credit rating itself could be subject to a cut next year, he added.

Thailand’s election agency hasn’t yet decided on a new date for the election made necessary by the court’s ruling last Friday. Ms. Yingluck dissolved parliament’s lower house last December as protests escalated, and since then her government has been reduced to a caretaker status, which limits its power in making major decisions, including budget disbursement.

Mr. Somchai said the delay in establishing a new government slows down the state budget plan and spending. The government’s plan to upgrade infrastructure, which was previously expected to drive growth this year, also faces a roadblock from a court ruling earlier this month against the financing method.

The driver of economic activity this year will be exports, Mr. Somchai said. Overseas shipments are expected to improve in the second half of the year as major trade partners recover.

Write to Warangkana Chomchuen at warangkana.chomchuen@wsj.com

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