Thailand's annual GDP may shrink to 1.5% due to flood

Thailand's annual GDP is projected to drop in the fourth quarter due to repercussion from worst-flood in 50 year, Bangkok Post reported on Tuesday.

The Thai economy is projected to contract by 3.7 percent in the fourth quarter, down from a previous projection of 5 percent before the floods, depressing annual growth to 1.5 percent from the earlier projection of 3.5 percent to 4 percent, according to the National Economic and Social Development Board (NESDB).

The country's worst floods, caused by heavy monsoon and overflow from several dams in upper part of the country, in nearly 60 years has claimed more than 600 lives and affected about 10 million people since mid July.

A better outlook is projected for next year with 4.5 percent to 5.5 percent economic growth, the NESDB said on Monday.

The NESDB estimated the floods would damage the Thai economy by 2.3 percent, or around 200-300 billion baht (6.4 - 9.6 million U.S. dollars).

The figure is an initial projection, but the real impact depends on how quickly the government and companies can repair infrastructure and operations. 

Some have set a target of 45 days after the water recedes to resume production, except for the electronic sector, which will need up to six months.

The agency announced that the GDP growth of 3.5 percent in the third quarter, exceeding 2.7 percent in the second quarter and 3.2 percent in the first, supported by the recovery of industrial manufacturing after the tsunami in Japan. 

The GDP of the industrial sector in the quarter was 3.1 percent, rebounding from a contraction of 0.1 percent in the second quarter.

Export value rose 27.3 percent year-on-year and private investment and tourism also grew, said NESDB Secretary-General Arkhom Termpittayapaisith.

However, the floods caused a contraction by 0.9 percent in the agricultural sector, slicing 0.7 percent off overall economic growth in the third quarter.

For the initial nine-month period, the NESDB reported economic growth of 3.1 percent.

GDP value at current prices is projected at 10.66 trillion baht, down from a previous projection of 10.87 trillion. The projection is based on oil priced at 103-107 U.S. dollars a barrel.

The projection for investment growth this year was cut to 4.7 percent from 6.2 percent. Private investment is projected at 8.8 percent growth while government investment should contract by 7.9 percent.

Consumption growth is projected at 2.3 percent, down from 3.3 percent previously. Export growth is projected at 17.2 percent growth to 226.9 billion U.S. dollars and inflation at 3.8 percent.

He expects flood rehabilitation and the continued growth of Asian economies will contribute to the higher figures.

Risk factors are a delay in rehabilitation in both the industrial and household sectors, the euro zone debt crisis, oil prices and the government's ability to build a water management plan next year.

2012 budget offers no solutions, says Abhisit

The proposed 2.38 trillion baht fiscal budget for 2012 has set no priorities and offered no solutions to the pressing problems of the country, Democrat Party leader and opposition leader Abhisit Vejjajiva said yesterday.

Prime Minister Yingluck Shinawatra watches opposition leader Abhisit Vejjajiva on a monitor as he takes the floor during the first day of debate on the government’s 2012 Budget Bill in parliament yesterday. The debate ends today. 

Prime Minister Yingluck Shinawatra read out the government's 2012 fiscal Budget Bill to the House yesterday.

Of the total budget, the government has earmarked 120 billion baht to compensate flood victims and for post-flood rehabilitation next fiscal year.

Mr Abhisit criticised the allocation during the House budget debate yesterday and said the government's plan to spend 120 billion baht lacked details and possibly failed to guarantee transparency.

He was concerned the budget would be spent non-transparently by various ministries, because the spending of this budget will not be double-checked by parliament.

The proposed payment of 5,000 baht in compensation for each family hit by the floods will cost about 50 billion baht and the government had failed to present details on the spending of the rest of the 70 billion baht.

He disagreed with the government's plan to raise 120 billion baht for flood compensation by cutting funding from other projects.

The government proposed cutting the education loan budget by 7 billion baht, budget for free medical services by 7 billion baht, and the budget for peace-promotion operations in the far South by 3 billion baht to raise the flood compensation money.

Mr Abhisit said the government might not be able to generate its proposed income of 1.9 trillion baht during the fiscal year as expected as many industries had been damaged by flooding.

Many populist policies would also eat into the government's income.

He cited corporate tax cuts, fuel tax exemptions, the rice mortgage scheme, tax rebates for first-time car buyers, tax reductions for first-time home buyers, and 15,000 baht minimum salaries for government officials.

He also warned the government against its decision to increase the budget deficit from 350 billion baht to 400 baht, saying the rise was dangerous.

"What we are most afraid of is that finally it must collect more taxes from people and business operators, particularly small and medium ones, who are already suffering in the floods," Mr Abhisit said.

Democrat MP for Bangkok Korn Chatikavanij said the deficit increase reflected the government's intention to borrow more and there is no sign the government would try to balance the budget.

"I suggest the government postpone its plan to cut corporate income tax from 30% to 23% next January for another year.

"It could save 100 billion baht in revenue and spend that on rehabilitating SMEs hit by the floods," Mr Korn said.

"The government should also postpone first-car and first-home buying for one year because it is not an appropriate time for such costly policies," he said.

Prime Minister Yingluck insisted the government's tax privilege policies for first-car and first-home buyers should go ahead.

She said the policies would stimulate the economy and do not cost much money. The policies were promised by her Pheu Thai Party to the people so they could establish themselves with a car and home more easily.

Ms Yingluck said GDP is expected to grow by between 4.5 and 5.5% next year on the back of government spending. The debate continues today.

GDP growth forecast to fall further

The Bank of Thailand will drop its growth forecast even lower for gross domestic product this year as the massive flood works its way through Bangkok and into Samut Sakhon.

"How much [the Monetary Policy Committee] will decide to revise downwards the GDP figure on November 30 will depend on the latest estimated loss figures. The situation has not yet stabilised," Deputy BOT Governor Suchada Kirakul said yesterday.

The flood situation is still evolving. Flood waters are spreading into downtown Bangkok and some areas of the neighbouring provinces, she said.

On October 28, the central bank slashed its growth forecast to 2.6 per cent from 4.1 per cent after floods swamped almost 10,000 factories and threatened to seep into the capital.

The tourism industry is expected to see a decline of about 700,000-800,000 arrivals this quarter, resulting in the no-show of about Bt20 billion in income. These effects were not taken into consideration at the previous MPC meeting, she said.

The latest estimated damage to manufacturing is a minimum of Bt150 billion, up from the previous estimate of Bt110 billion. The estimate will be updated before the MPC meeting.

The MPC, which paused its policy-rate hikes at its October 19 meeting because of the floods, will likely assess the severity of the flood's impact before deciding on the rate's direction.

If the economy worsens, policy-makers could shift towards a more accommodative stance, Suchada said.

"At the last meeting, the MPC acknowledged how bad the floods were. A decision was made then to leave the rate unchanged," she said. "The rate's next direction may be to be held as is or lowered. The market knows this signal. And this is help the central bank can provide directly, a monetary policy that supports economic recovery."

On October 19, the MPC decided to keep the policy rate on hold at 3.5 per cent, citing the nation's severe floods and weakening global economy.

Tisco Wealth expects the Thai economy to expand only 2 per cent this year, if the government fails to fix flood problems within a few months and areas of inner Bangkok are seriously affected. In the worst-case scenario, the fourth-quarter economy will contract.

Tisco Wealth will re-evaluate the 2012 situation. It noted that manufacturing should recover quickly if the machinery in inundated industrial zones is not significantly damaged.