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After coup, Thai economists raise growth outlook

Only a week after Thailand's military coup, some economists are upgrading their estimates for an economy that seemed headed for recession.

world Updated: May 30, 2014 12:26 IST

Only a week after Thailand's military coup, some economists are upgrading their estimates for an economy that seemed headed for recession.

Southeast Asia's second-largest economy shrank 2.1 percent in the first quarter after nearly seven months of political protests depressed activity, but change has come swiftly.

The military council ended the protests and moved quickly to tackle economic problems that had piled up in the absence of a proper government since December, making delayed state payments to rice farmers, rolling over tax cuts, restarting government spending and looking to fast-track infrastructure projects.

"We are now positive about the economic outlook in the second half, seeing growth then of 3-5 percent," said Pragrom Pathomboorn, an economist with KGI Securities in Bangkok.

"The coup could be better for the country than a crippled caretaker government. I'm not so pessimistic now," he added.

Pragrom is forecasting economic growth of 1.9 percent for the full year, down from the 3.0 percent he had expected last November as the protests were starting up. But if the unrest had dragged on, he would have been looking for just 0.8 percent.

Thammarat Kittisiripat, an economist with TMB Bank, is keeping his forecast of 2 percent for the moment but says "there is a bit of upside on that now the military government will speed up disbursements and rice payments".

Hundreds of thousands of farmers have been waiting months for payments totalling around 90 billion baht ($2.75 billion) for rice sold into a state buying programme.

The junta has indicated that will all be paid within a month and much is likely to be spent rapidly. Air Chief Marshal Prajin Juntong, who is overseeing economic matters, said the rice payments could add 0.2 percentage point to growth this year. Thammarat is hopeful about more measures to spur spending.

Seeing some light
The economy grew 2.9 percent in 2013. Before the coup, the Finance Ministry had slashed its forecast for this year to 2.6 percent from 4 percent and was set to cut it further.

It is now becoming a little more optimistic. Somchai Sajjapong, head of the fiscal policy office, says growth would be at least 2 percent this year but the office is aiming for 3 percent.

"We are starting to see the light at the end of the tunnel," he said. "The rice payments will boost consumption and having the new government earlier than expected means policies and spending can be pushed ahead immediately."

Pimonwan Mahujchariyawong, an economist with Kasikorn Research Center, is forecasting 1.8 percent growth and says it could go higher "if the new government's economic measures are good and can really be implemented, helping offset weakness in exports, output and tourism".

Tourism, which accounts for about 10 percent of the economy, has taken a hit from the months of political turmoil and now the coup. The Thai authorities expect around 26 million visitors this year rather than the 28 million forecast earlier.

Exports are stagnant. The Commerce Ministry has cut its export growth forecast this year to 3.5 percent from 5 percent. Data from the central bank on Friday is likely to show private consumption and investment remained depressed in April.

In contrast to some local analysts, foreign financial market economists and ratings agencies appear more fearful of the impact of the coup, both for this year and for the longer term.

Rating agency Fitch said that if a roadmap for political stabilisation is not in place within a month or two, there could be more lasting damage to the economy, which could be negative for Thailand's sovereign credit rating.

Morgan Stanley has slashed its GDP forecast for 2014 to zero percent from 3 percent. "The downside surprise in Q1 has already lowered the incoming growth trajectory and the recent coup adds to growth pressures," it said, noting other challenges such as high debt, weaker productivity and a fall in Thailand's share of global exports.

Although the Thai economy and its financial markets have proved fairly resilient to past military coups, HSBC analyst Frederic Neumann said in a report that "such resilience masks a darker reality: the Thai economy is falling behind its regional peers, its competitiveness is sputtering and growth is increasingly driven by debt, not productivity".