News / Economy

No Quick Rebound as Clouds Gather Over Thai Economy

FILE - A sign indicating the closure of a main touristic road can be seen next to barricades of anti-government protesters near a main stage of the protest in Bangkok, Feb. 5, 2014.
FILE - A sign indicating the closure of a main touristic road can be seen next to barricades of anti-government protesters near a main stage of the protest in Bangkok, Feb. 5, 2014.
Reuters
— Any comfort investors in Thailand draw from what happened four years ago, when economic growth, the stock market and foreign investment all surged despite deadly unrest in Bangkok, may be sorely misplaced.
      
The latest bout of political strife will delay major government spending projects and damage a lucrative tourism industry. And, even if Thailand's politics calm down, its economy will remain handicapped by weak private investment and rising household debt.
      
“If you look at the channels through which politics impacts real economic activity, it's virtually every demand side component of GDP,” said Euben Paracuelles, senior economist at Nomura. “But, where I have a bigger worry is on private consumption and private investment.”
 
Data released on Monday showed the economy slowed sharply in the fourth quarter of 2013, when street protests aimed at bringing down Prime Minister Yingluck Shinawatra's Pheu Thai Party government first began.
 
Over-optimistic
 
The national planning agency slashed its growth forecast to 3-4 percent for 2014, from the 4-5 percent it was predicting in November, when the protests began building a head of steam. Some private sector economists think that is still over-optimistic.
         
“The longer the power vacuum lasts, the worse it will be for the Thai economy,” said Krystal Tan, Asia economist at Capital Economists, who doubts growth will top three percent this year.
 
“Spending restrictions on the caretaker government leave it with limited ammunition to boost the economy,” she added in a note.
 
As well as the big-ticket infrastructure items now facing delays, the government will also be unable to pursue the populist policies that brought Yingluck to power in 2011.
 
A controversial rice subsidy that has run into funding problems cannot be renewed when it expires this month, which will hit rural demand.
 
“Another major downside risk to growth from government spending is the inability to pay the rice farmers under the pledging scheme when many of them are already facing a liquidity problem,” said Santitarn Sathirathai, an economist at Credit Suisse in Singapore. “Even the cautious economists in the market, including ourselves, have not fully factored this issue in.”
 
This time it’s different
      
While 12 people have been killed in sporadic clashes between protesters, security forces and government supporters, the unrest has so far been less violent than during the country's last major spasm of street protests four years ago.
 
More than 90 people were killed in April and May 2010, but that year saw foreign direct investment jump 88 percent, the stock market surged 41 percent and the economy bounded ahead by 7.8 percent, its best performance in 15 years.
 
Back then China, the biggest market for the exports that make up 60 percent of the Thai economy, was roaring back from the global financial crisis at a stimulus-fuelled, double-digit clip, while domestic private investment was picking up.
 
Though it expanded 7.7 percent last year, China's growth narrowly missed a 14-year trough.
 
The chill for Thailand is even more evident in private investment, which fell 13.1 percent in the fourth quarter of 2013 from a year earlier. The National Economic and Social Development Board sees it rising just 3.8 percent this year.
 
In 2010, private investment rose nearly 14 percent.
 
Tourism, whose share of Thailand's economy has been grown in recent years to account for around 10 percent of GDP, has been suffering. Just last week, Starwood Hotels & Resorts Worldwide warned that political unrest had “significantly” hurt its business in January.
 
Of greater concern over the longer term is the rapid accumulation of debt by Thai consumers, who splurged on loans for house and car purchases in recent years.
 
Household debt is now equivalent to around 80 percent of GDP, up from 56 percent at end of 2008, and the Bank of Thailand warned this month it was likely to rise further as consumer loan growth may be faster than economic growth.
 
That is likely to depress consumer confidence, which dropped for a 10th straight month in January, even after the political crisis is resolved, and will limit the ability of the central bank to cut interest rates too far to prop up growth.
 
“When we get some kind of resolution, tourism tends to recover very quickly,” said Nomura's Paracuelles. “But what I would caution is that maybe the recovery is not going to be as quick from the private consumption side as previous episodes have suggested, because the difference now is we have very leveraged households, which are spending a lot of their disposable income just to service that level of debt.”

You May Like

Is Air Travel Safe?

Aviation expert says despite tragic losses of Malaysian Airlines flights 370 and 17, industry experienced lowest fatality rate in recorded history last year More

Multimedia 100 Days Later, Nigerian Girls Still Held

Activists holding rallies in Nigeria and several other countries to mark 100th day of captivity for more than 200 schoolgirls being held by Boko Haram More

Chocolate Too Bitter? Swap Sugar for Mushrooms

US food technology company develops fermentation process using mushrooms to reduce bitterness in cocoa beans, believes it will cut sugar content in candy More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Carriers Suspend Travel to Israeli
X
Carolyn Presutti
July 23, 2014 1:21 AM
The United States is prohibiting American carriers from flying to Israel's airport in Tel Aviv for 24 hours, because of rising violence between Israel and Hamas militants. The action was announced on Tuesday, after a rocket fired by Hamas militants in the Gaza Strip landed near the airport. As VOA's Carolyn Presutti tells us, international officials soon may have to determine which combat zones are too dangerous for commercial flights.
Video

Video US Carriers Suspend Travel to Israel

The United States is prohibiting American carriers from flying to Israel's airport in Tel Aviv for 24 hours, because of rising violence between Israel and Hamas militants. The action was announced on Tuesday, after a rocket fired by Hamas militants in the Gaza Strip landed near the airport. As VOA's Carolyn Presutti tells us, international officials soon may have to determine which combat zones are too dangerous for commercial flights.
Video

Video NASA Focuses on Earth-Like Planets

For decades, looking for life elsewhere in the universe meant listening for signals that could be from distant civilizations. But recent breakthroughs in space technology refocused some of that effort toward finding planets that may harbor life, even in its primitive form. VOA’s George Putic reports on a recent panel discussion at NASA’s headquarters, in Washington.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.
Video

Video Relic of Saint Draws Catholics Worried About Immigration Issue

A Roman Catholic saint who is a figure of devotion for those crossing the border into the United States is attracting believers concerned about the plight of undocumented immigrants. Mike O'Sullivan reports from Los Angeles, where a relic of Saint Toribio has drawn thousands to local churches.
Video

Video US Awards Medal of Honor for Heroics in Bloodiest of Afghan Battles

U.S. combat troops are withdrawing from Afghanistan, on pace to leave the country by the end of this year. But on Monday, U.S. President Barack Obama took time to honor a soldier whose actions while under fire in Afghanistan earned him the Medal of Honor. VOA's Jeff Seldin has more from the Pentagon.
Video

Video Ukraine Rebels Surrender MH17 Black Boxes

After days of negotiations, a senior separatist leader handed over two black boxes from an airliner downed over eastern Ukraine to Malaysian experts early Tuesday. While on Monday, the U.N. Security Council unanimously demanded that armed groups controlling the crash site allow safe and unrestricted access to the wreckage.
Video

Video In Cambodia, HIV Diagnosis Brings Deadly Shame

Although HIV/AIDS is now a treatable condition, a positive diagnosis is still a life altering experience. In Cambodia, people living with HIV are often disowned by friends, family and the community. This humiliation can be unbearable. We bring you one Cambodian woman’s struggle to overcome a life tragedy and her own HIV positive diagnosis.
Video

Video Nature of Space Exploration Enters New Age

Forty-five years ago this month, the first humans walked on the moon. It was during an era of the space race between the United States and the Soviet Union. World politics have changed since then and -- as Elizabeth Lee reports -- so has the nature of space exploration.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.