As a result, EIC revises down growth of export value to 2.7% from the previous estimate of 3.4%. Similarly, private investment is predicted to decelerate from the end of last year, consistent with a slowdown in export sector, global trade policy uncertainty, and post-election risk that could delay investment decision. Nevertheless, the Thai economy still gets a boost from tourism sector, which has signaled an improvement due to faster-than-expected recovery in the number of Chinese tourists. Accordingly, EIC revises up the forecast of number of foreign tourist arrivals to 40.7 million from 40.2 million, representing growth of 6.3%. Besides, public construction, which consists mostly of on-going projects, is estimated to worth THB 760 billion this year or an increase of 7%. It will be another key supporting factor in this year.
With regards to private consumption, it is expected to expand gradually following an improvement in employment and wages as well as a boost from government stimulus. Nonetheless, durable goods consumption will likely decelerate from last year's due to high base effect of passenger car consumption in the previous year and the impact of macroprudential policy aiming to curb household debt to an appropriate level.
EIC expects policy rate to stay flat at 1.75% throughout 2019. This is because the Thai economic growth tends to be slower than Monetary Policy Committee (MPC) previously projected. Furthermore, there are higher downside risks arisen from both external and internal uncertainties. Headline inflation, moreover, remains at a low rate of only 0.7% in the first quarter of the year and is predicted to average at only 0.9% this year, which is below the lower bound of the monetary policy target. This could be a key reason for MPC to not hike the rate this year. With this regard, MPC tends to use macroprudential policies as well as regulations on financial institutions to help alleviate specific vulnerability which could affect financial stability in the future, particularly household debt that continues to accelerate faster than income and underpricing of risks in financial investment.
For the trend of Thai baht, it is anticipated to be within a range of 31-32 THB/USD at the end of 2019, appreciated from the end of last year. The key reasons for the appreciation trend include weaker USD, more dovish FED, and strong Thai economic fundamental, as reflected by high current account surplus to GDP, which is expected to be around 6.4% of GDP in 2019. However, Thai baht may depreciate if global financial condition becomes tighter and domestic political stability weakens.
Key challenges ahead are from external global economic uncertainty and domestic political instability. Despite a good sign from trade negotiations between the US and China as well as more dovish tone from major central banks that could benefit global economic condition in the short run, there remains challenges to global economic growth, which are 1) trade tension that will continue and might be escalated again because it is a structural problem, 2) global financial condition that could tighten again, 3) high debt problem in countries such as corporate debt in China and the US, and 4) Brexit that would have negative impacts on UK and Eurozone economies and global financial volatility.
While political instability would be a key risk factor internally. Political uncertainty remains high even after the election. As both sides of political parties will hold a close number of parliament members, there is a high chance that the new government could be a weak coalition government implying instability and low efficiency in implementing economic policy going forward. This might bring about the delay in both investment and consumption decisions until the uncertainty subsides.
By: Yunyong Thaicharoen, Ph.D.
Chief Economist and FEVP
Siam Commercial Bank Public Company Limited
EIC Online: www.scbeic.com