Over the past 12 months Thailand’s economy has come under growing pressure, with political unrest combining with falling industrial output and weakening exports to slow development and cool investor confidence.
The latter part of the year was dominated by the increasingly vocal opposition to the government of Prime Minister Yingluck Shinawatra, with the unrest spilling over into the economy and onto the streets. Many public buildings were surrounded by protestors ahead of the new year, with the demonstrators seeking to halt the operations of government.
Though the government has called a general election for February 2, a move aimed at underscoring its mandate and putting an end to the crisis, most opposition parties have declared their intention to boycott the poll. Even if returned to office, the prime minister’s Pheu Thai Party and its allies may continue to face unrest in the streets, if not opposition in the parliament, which may add to the difficulties of the government in trying to revitalise the economy.
In late December, the Finance Ministry lowered its year-end GDP forecast, cutting its expectations for growth in 2013 from 3% to 2.8%, the downgrade coming a month after the Bank of Thailand had reduced its projection to around 3%, down from 3.7%.
A number of analysts have already factored in the potential for an extended period of political instability in their predictions for the economy in 2014, with many lowering their expectations for GDP expansion from the 4-5% range down to a bracket of 3-4%. On January 16, the Finance Ministry said it was forecasting a rise of 3% for this year, down from the 4% announced last month.
One of the government’s main economic problems has been home-grown, with its price support programme for rice spurring production at a time when domestic and international demand was flagging. Some estimates have put the cost of the government’s subsidies scheme, which guarantees a minimum price that is well above market rates, at more than $9bn last year, an obligation the state is now having trouble meeting. These delays in payments, which amount to some 2.5% of GDP, have sparked protests among farmers, who have traditionally been some of the strongest supporters of the prime minister.
Thailand attempted to reduce its rice mountain during the year through overseas sales, with exports estimated at 6.4m tonnes, well short of the 8.5m tonnes targeted by the government. The state has said it aims to export at least 8m tonnes in 2014, generating revenues of $4.8bn, almost 20% higher than last year.
Exports in all forms remained an issue throughout the year, with outward-bound shipments easing while imports rose marginally. As of November, exported goods and services for 2013 stood at $210.09bn, a year-on-year (y-o-y) dip of 0.49%, while imports rose by 1.22% to total $231.99bn, leaving a record high trade deficit of $21.9bn.
Analysts and the government believe exports will pick up in 2014 as conditions improve in some traditional markets such as the US, Japan and Europe, but competition from regional rivals in some key sectors – including rice production – could keep Thailand’s international trade in deficit again in the coming year.
Exports could also be hit by a decline in tourism due to the political instability, although the sector was one of the few bright spots last year. Arrivals reached 26.7m in 2013, exceeding the government’s target of 26.1m and nearly 20% higher than the number of visitors in 2012.
Among other challenges facing Thailand this year is the possibility of further devaluation of its currency, which fell nearly 8% over the course of 2013, in large part due to speculation that the US Federal Reserve would end its quantitative easing programme. Pressure on the baht could continue into 2014, both as a result of the Fed’s tapering of its bond buying, which came into effect in January, and if the cloud of political uncertainty continues to hover over Thailand.
A survey conducted early in the new year by the University of the Thai Chamber of Commerce showed that consumer confidence had also declined since the political stand-off escalated, with enthusiasm for spending on property, vehicles, holidays and stock investments all dipping.
The slowing of the economy was reflected in the near-flat rate of inflation last year, with the consumer price index edging up 2.18% in 2013, down from 3.02% in 2012, suggesting that domestic demand had eased. In its outlook for 2014, the Ministry of Commerce said inflation should remain in the 2-2.8% range, unless certain factors – such as a sharp increase in fuel prices or a reduction in some state subsidies – came into play, in which case the consumer price index could rise by up to 3.9% over the coming 12 months.
While some of the deceleration in Thailand’s economy stemmed from the unrest on the streets, the cooling had begun well before the protest movement became active in the last quarter. The manufacturing sector saw output fall by 10.6% y-o-y as of the end of November, despite a modest 0.54% increase in productivity for that month, the first time since July that there had been any improvement. According to the Ministry of Industry, industrial capacity utilisation remained low, coming in at 63.14% in November.
Suggestions that Thailand’s military could step back into the political arena, while welcomed by some segments of society, will do little to bolster investor confidence in the short term, though the ongoing unrest will also put a brake on the economy in 2014 unless resolved.
Despite all the negatives, most analysts are predicting the Thai economy will grow this year, a tribute to its ability to survive and even prosper in adversity. While 2014 will probably see the country lag behind some of its neighbours in terms of growth, increased international demand will help pull the Thai economy along in its wake.
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