Thai central bank cuts 2015 growth forecast, sees falling exports, prices

Thailand's central bank cut its 2015 growth forecast and said exports and consumer prices will fall this year, showing the country still faces big obstacles to getting back on a solid growth track. The Bank of Thailand (BOT) lowered its growth projection to 3.0 percent from 3.8 percent seen three months ago. A year ago, after the military seized power, the central bank had forecast 5.5 growth for 2015.
Significantly, the BOT now says that exports - a pivotal, traditional growth engine that fell in 2013 and 2014 - will contract 1.5 percent this year instead of rising 0.8 percent. A year ago, the BOT predicted a 6 percent increase for exports in 2015. And while it contended the "probability of deflation" is low and that prices will rise in the fourth quarter, the central bank said it expects consumer prices to decline 0.5 percent this year rather than increase 0.2 percent. So by economists' definition, Thailand will have deflation this year. BOT Assistant Governor Mathee Supapongse said prices are expected to bottom in the current quarter, and later rise as the effects on the base from low oil prices fade.
The central bank, which announces economic forecasts every three months, said there are "downside risks" to growth but the economy should improve "gradually" in the second half, thanks to anticipated higher state spending and more tourists. It raised its 2016 growth forecast to 4.1 percent from 3.9 percent. "The economy will return to its normal trend next year," Mathee said, citing an anticipated 2.5 percent increase in exports then as the main factor.
Private economists are sceptical the growth rate can rise unless there's a big increase in government spending and exports. "We will need to wait for infrastructure projects to come through in order to reboot Thailand," said Sarun Sunansathaporn, economist of Tisco Securities in Bangkok. He said the economy, which grew 3.0 percent on an annual basis in the first quarter, needs to expand 3.2 percent in the second half to get 3 percent for 2015.
Nalin Chutchotitham, HSBC economist in Bangkok, said for domestic investment and consumption, "we have yet to see strong recovery as agricultural prices are still not doing well." Friday's forecast downgrades were expected after the BOT's monetary policy committee cut the benchmark rate in March and April before leaving it unchanged at 1.50 percent on June 10.