Thailand’s Government Stimulus Seen Insufficient to Aid Growth This Year

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BANGKOK – Thailand’s government is trying to bolster a struggling economy that is at risk of trailing its peers with a stimulus package that analysts say is insufficient to counter the damage from falling exports and weakening domestic demand.

The cabinet last week approved a 364.5 billion baht ($11 billion) budget that Deputy Prime Minister Pridiyathorn Devakula said will be “more than enough to jumpstart the economy” this year. The government also said it will speed up approvals for 380 projects worth 429.2 billion baht and quicken investment spending for the 2014 and 2015 fiscal years.

“We have to accept that we are in a hard place,” said Kampon Adireksombat, an economist at Tisco Securities Co. in Bangkok who doesn’t expect a boost from the stimulus measures this year. “The recovery in the second half is not as strong as expected because of weak exports and weak consumption.”

The World Bank this week cut Thailand’s growth forecast for this year and next, predicting it will have the slowest expansion among major Asian economies. The nation’s underperformance may keep investors at bay as they are lured by faster expansions in Malaysia and the Philippines, undermining the country’s ability to face potential outflows as the U.S. nears interest-rate increases forecast to begin next year.

“While the government has promised and approved several big-ticket infrastructure projects in principle, we maintain a view that progress will be slow due to a lack of clarity on project priorities,” said Ambika Ahuja, Eurasia Group’s Asia analyst in London. “Funding uncertainties will also add to delays, as long-term political risk will be a disincentive for private sector players and foreign investors.”

Confidence Slips

Thai consumer confidence fell in September for the first time since the May 22 military coup on concerns that incomes may be hurt by lower commodity prices and as exports and tourism weakened. Overseas sales fell the most in August since 2011, while manufacturing output slipped for a 17th month and visitor arrivals slumped almost 12 percent from a year earlier.

The one bright spot has been foreign direct investment: applications approved surged to 64 billion baht in August compared to the 10 billion baht monthly average in the period from January to May, as the new military government cleared the backlog, according to the Board of Investment.

The revival of investment has spurred gains in stocks, with the benchmark SET index climbing about 19 percent this year. Foreigners were net buyers of $657.1 million of Thai stocks last month, a third straight month of buying and the highest since Dec. 2012. The baht is one of three gainers this year among 11 Asian currencies tracked by Bloomberg.

Farmer Protests

Thailand’s relative calm since the army seized power in May may soon be tested, as farmers frustrated by falling prices threaten to take to the streets in defiance of martial law. Also, King Bhumibol Adulyadej underwent an operation to remove his gall bladder, palace officials said this week. The health of the monarch is watched closely in the country.

While the government stimulus should help bolster long-term potential growth, a broad-based recovery hasn’t taken hold, the central bank said. Governor Prasarn Trairatvorakul said last week the government’s measures are unlikely to significantly lift the economy this year.

The World Bank forecasts the Thai economy may grow 1.5 percent this year, the smallest expansion since 2011, when the worst floods in almost 70 years shuttered factories. Its estimate for 2015 expansion is 3.5 percent, again the slowest among major Asian economies.

“Malaysia is growing much faster, Indonesia is growing faster, so among the Asean 5, clearly it’s the laggard right now,” said Sudhir Shetty, the World Bank’s East Asia and Pacific chief economist, referring to the group that also includes Singapore and the Philippines. While the government is beginning to implement programs including infrastructure investment, “it’s too early, frankly, to say what the longer term direction of the economic policies will be.”

By Suttinee Yuvejwattana in Bangkok