Junta’s Ability to Turn Country Around in Focus
By Nopparat Chaichalearmmongkol
Updated July 30, 2014 6:47 a.m. ET
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BANGKOK—Thailand’s economy continued to struggle in the second quarter amid declining growth and manufacturing activity—underscoring concerns over the junta’s ability to revive consumption and investment hit hard by months of political instability.
Employees at an automobile assembly line in Thailand, where the Manufacturing Production Index fell for the 15th straight month. Reuters
Thailand’s Finance Ministry reported Wednesday that the economy shrank 0.3% compared with the second quarter a year ago, although it grew 0.2% from the first quarter.
“In June and the second quarter of this year, there continued to be signs of slowdown in the tourism sector and private spending,” said Kritsada Jinavijarana, director-general of the Finance Ministry’s Fiscal Policy Office.
The contraction led the ministry to lower its 2014 growth forecast to 2% from an earlier projection of 2.6%.
In the first quarter of 2014, Thailand’s economy declined by 0.6% from a year earlier and 2.1% from the quarter before. The country’s economy expanded 2.9% in 2013.
The government’s economic planning agency, the National Economic and Social Development Board, which is in charge of economic data reports, is scheduled to release Thailand’s official gross domestic product report on Aug. 18.
The Finance Ministry’s latest projection, however, was still rosier than the Bank of Thailand’s forecast of 1.5% GDP growth for 2014 and the projections of many economists, including the bearish view of Moody’s Analytics that projects an economic contraction for Thailand in 2014.
“We’re expecting the Thai economy will contract 0.4% through 2014 and when you see prints, like the latest production numbers, they kind of indicate our forecast,” said Fred Gibson, an economist at Moody’s Analytics in Australia.
Earlier on Wednesday, official data showed that Thailand’s manufacturing production index fell for the 15th consecutive month in June.
The MPI, which measures the volume of production and indicates the direction of the country’s manufacturing sector, fell 6.6% from a year earlier in June, steeper than a revised 4% decline in May, the Office of Industrial Economics at the Industry Ministry said.
Somchai Harnhirun, director general of the OIE, attributed the latest slide in the country’s MPI to weak domestic demand and a slowdown in spending, particularly for automobiles and the electrical appliances.
Thailand’s vehicle production was 26.1% lower than a year earlier in June. Electrical-appliance manufacturing fell 8.73% over the period, as consumers refrained from spending.
“I think the weakness in production has stemmed from the overall slowdown in the economy that the political crisis has brought about,” said Mr. Gibson of Moody’s Analytics, which projected a 3.2% contraction for June’s MPI.
Thailand’s army chief Gen. Prayuth Chan-ocha successfully seized power from an elected government on May 22, ousting the government of former Prime Minister Yingluck Shinawatra. The coup followed months of political rallies, social unrest and street violence that have pushed the economy to the brink of a recession.
Since the coup, the junta, which last week adopted a provisional charter to pave the way for the establishment of an interim government, has been implementing various measures to shore up the economy—including the disbursement of overdue payments of about $2.7 billion to farmers who participated in the state rice-subsidy program, the approval of some $6.3 billion in investment incentives to more than 100 projects, as well as a $75 billion infrastructure-development plan.
“The only consolations are the improving investor sentiments (seen from recent net equity inflows into the Stock Exchange of Thailand), mild recovery in consumer confidence, and a relatively stable government body,” said Barnabas Gan, an economist at OCBC Bank in Singapore. “The lackluster first-half-year data, to us, will merely be water under the bridge as we focus on the recovery expected in the second half of 2014.”
Mr. Kritsada of the Finance Ministry’s Fiscal Policy Office said local spending and manufacturing activity could improve during the remainder of the year, when exports and government spending are expected to grow further because of stronger consumer and business confidence.
Write to Nopparat Chaichalearmmongkol at email@example.com
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