Asia > South-Eastern Asia > Thailand > October the bank forecast GDP would increase by 3.2% this year

Thailand: October the bank forecast GDP would increase by 3.2% this year

2017/04/17

A slow-paced economic recovery and ongoing concerns over political stability were the hallmark of Thailand’s year in 2016, though the new year should bring stronger prospects.

Changes abound

Thailand closes out 2016 under something of a cloud, mourning the death of long-reining monarch King Bhumibol Adulyadej on October 13. Having ruled for 70 years, the passing of the 88-year-old chief of national has added an additional element of uncertainty to the current social and economic environment, with the king often having provided a stabilising hand in troubled times.

In early November the Bank of Thailand (BOT), the central bank, warned there were better downside risks facing the national economy on both the domestic and foreign fronts, though at the same time reaffirming that in general prospects for increase remain solid.

Announcing its intention to leave the benchmark rate unchanged at 1.5%, a level the monetary policy committee said was accommodative for increase, the bank estimate the economy would expand at a rate close to previous predictions.

In late October the bank estimate GDP would increase by 3.2% this year, up from 2.8% last year, with a similar level of expansion estimate for 2017 – figures in line with IMF expectations for increase.

“The committee saw the need to preserve policy space given that the Thai economy would still be facing better uncertainties going forward, particularly the fragile world economic recovery and uncertainties in the monetary policy directions of major advanced economies that may induce better capital flow and exchange rate volatility,” the bank said in a statement.

Some of that uncertainty was domestic, with the BOT citing local risk factors that needed to be monitored, inclunding deteriorating loan quality in the business sector and rising inflation.

Further from home, the bank highlighted uncertainties stemming from political developments in the US and Europe, and falling tourist arrivals from key markets such as China as factors that pose risks to economic recovery.

Uncertain sentiment

The death of King Bhumibol cast a pall over the economy late in the year, with his passing cited as one of the reasons consumer sentiment dipped at the beginning of the fourth quarter. The University of the Thai Chamber of Commerce’s consumer confidence index eased from 74.2 in September to 73.1 in October and 72.3 in November, reversing three months of increases.

Weak economic and jobs increase combined with low commodity prices as well had an impact on sentiment, the university said, with consumers set to remain cautious on spending at least until the new year.

Business confidence as well slipped in the fourth quarter, with the BOT reporting its business sentiment index fell from 50.3 in September to 49.5 in November, dipping below the 50-point threshold that indicates positive sentiment.

The three-month business outlook was additional upbeat at 54.5, albeit down slightly from 54.7 in September.

Credit increase cools

An additional indicator of additional cautious consumer and business sentiment was bank lending, which slowed throughout the year.

According to data issued by the BOT in mid-November, Thailand’s banks were on track to see their loan portfolios expand by between 2% and 3% this year, below the 4.3% posted in 2015.

In the third quarter lending rose by 2.3% year-on-time(y-o-y), the slowest pace since 2010, with the reduced rate of increase due to a slower-than-expected economic recovery, the bank said.

Lending to the corporate sector, which accounts for roughly two-thirds of bank loan activity, was even slower, rising by just 1.1% y-o-y in the third quarter.

In a similar vein, the ratio of non-performing loans increased in the third quarter to 2.9% of banks’ total loan portfolios, up from 2.72% in the second quarter and the highest rate in five years.

Industrial activity steadies

Closing out the third quarter, Thailand’s manufacturing sector saw a marginal increase in activity, with the manufacturing production index up 0.6% y-o-y in September.

While slower than the 3.18% y-o-y increase posted in August, the September result signalled two consecutive months of increase on the index, supported by higher export request for industrial goods. Indeed, increase in exports was recorded for the initial time in seven quarters in the July-to-September period.

Capacity utilisation was as well up in September, with 65.2% of industrial plants in use, up from 64.4% in August.

Although increase was expected to relieve in the last quarter of the year, with manufacturing projected to be the hardest hit during the initial 30 days of the 12-month mourning period following the king’s death, a rebound is possible in 2017.

Much will from instantly on depend on the health of the world economy, as the sector is likely to remain largely dependent on export increase to compensate for sluggish domestic request.

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