Thailand Year in Review 2014

A slowing of domestic and overseas demand, combined with uncertainty over Thailand’s political direction, cooled the economy in 2014, with most forecasts for this year indicating growth will remain subdued.

Thailand’s economy is still rebalancing after the social unrest in the early months of 2014 and a military intervention in May. Although the coming-to-power of a government has seen a marked decline in protests and disruptions to the economy, there has also been a scaling back of investment projects and state spending, which is likely to curb growth.

Events in the political sphere affected some key industries, such as tourism and hospitality, which saw a sharp fall in arrivals during times of violent protests in the early months of 2014. After the May coup, a number of countries issued advisories to their nationals recommending that they avoid Thailand.

Tapering demand in some export markets also had an impact on the economy, with the slowdown in China and the decline in global prices of commodities such as rubber playing a role. However, towards the end of the year, the situation was improving; international rubber prices began to rebound and rice exports are poised to pick up as Thailand’s rice pledging scheme comes to an end and global production faces a decline.

In plans unveiled at the end of January, the finance ministry said it will borrow BT40bn ($1.65bn) to provide temporary work for farmers during the dry season in a further bid to boost the economy.

The latest figures show total exports through November were down 0.42% year-on-year (y-o-y) to BT6.85trn ($209bn) while imports saw an even sharper decline, down almost 9% to BT6.9trn ($210bn). Exports are tipped to expand 1-3% in 2015 with the external contribution to growth expected to be limited.

Growth flatter

In late December, the Bank of Thailand (BoT) lowered its forecast for economic expansion for 2014 to 0.8% citing falling exports, weaker public spending and reduced receipts from tourism over the year. The revised figure is less than one third of the 2.9% expansion achieved in 2013 and almost half the 1.5% the bank had earlier projected.

The outlook for the Thai economy for the coming year is more positive – though still lagging behind most ASEAN states – with the IMF predicting GDP will expand by 4.1%, in line with the most recent estimates from the BoT. In its forecasts released on January 1, the Thailand Development Research Institute was slightly less optimistic, projecting growth of between 3.5%-4%, with an expected increase in government spending and a more stable political climate to bolster economic expansion.

Warming consumer sentiment

Any rebound in the coming year could be supported by a slow but steady rise in consumer sentiment, which hit a 10-month high in October. According to data from the Fiscal Policy Office (FPO) issued at the end of the year, the consumer confidence index climbed to 69.9 in October, well up on the 59.9 posted in the first quarter and an improvement on the 2013 year-end level of 64.9. Though still well short of the 100 points needed to indicate a positive outlook, the increase in the index suggests improved opportunities for retail, services and investment.

While growth was subdued, so too was inflation, thanks in part to falling oil prices, which helped to keep prices down and also offset a slip in Thailand’s exports. The BoT estimated a 1.6% rise in consumer prices for 2014, predicting an even lower 1.2% in 2015. Other agencies, such as the Commerce Ministry see price increases coming in slightly higher with a top range figure of 2.8% and 2.5% for last year and this, respectively.

There has been some speculation that the BoT could cut its key interest rate in 2015, having left its lending rate at 2% in its final meeting of 2014 in mid-December. With the economy slowing and inflation remaining at modest levels, the bank could opt to support lending to stimulate both consumer spending and investment, with the BoT issuing a statement on December 26 saying monetary policy should help reinforce the momentum of economic recovery.

Foreign investment also fell during the year, though indications late in 2014 suggested renewed interest in Thailand by international investors. According to data issued by the state’s Board of Investment (BoI) in late November, foreign investment was down 10% y-o-y in the first 10 months of 2014.

This could be countered by an uptick in project applications that came late in the year, with the BoI announcing it had approved a series of industrial developments, valued at BT21bn ($700m). While these projects will not break ground until well into 2015, their size indicates investor sentiment was strengthening late in 2014, a trend that could carry forward this year.