World Bank raises forecast but worries about government spending

World Bank raises forecast but worries about government spending

World Bank raises forecast but worries about government spending

The US-based World Bank recently announced that it had raised its full-year economic growth forecast for Thailand to 3.1 percent on the back of what has been a promising first half of this year.

Despite the good news, the World Bank did offer some concerns while voicing concerns about the main economic engine, which is government spending. As well, although the Thailand forecast is an improvement, the country is still likely to be behind many of its compatriots in the Southeast Asian region.

The World Bank’s senior economist said the strong tourism sector, government stimulus measures and rising private consumption have been the factors which have underpinned economic growth in the first six months, but shrinking exports and tepid private investment were indicative of growth not being distributed to every sector in the economy.

The World Bank had previously estimated Thailand’s 2016 growth was going to be 2.5 percent, but even if the country does now post a 3.1 percent GDP growth “a broad-based and self-sustaining recovery has yet to take hold.”

The World Bank is quoted as saying, “Our view for the future is the same as the Bank of Thailand’s: that economic growth in the third and fourth quarters will not be as high as growth in the first two quarters…Right now, Thailand’s economic growth is relying heavily on government expenditure, so the important question is how the government will stimulate every sector before the fiscal policy space runs out.”

Government spending in the July-to-September quarter slowed down, with a lower disbursement rate than in the previous quarter, and this was especially for infrastructure investment.

The World Bank stated it considered the main risks for the Thai economy are the financial instability of China and the possibility of political uncertainty at home that could delay public spending and weigh on consumer and investor confidence.

The World Bank’s most recent survey of companies in Thailand found the two main factors discouraging private investment were a shortage of skilled labour and a lack of confidence in state investment plans.

It stated the private sector still needs assurance that political chaos will not repeat itself and the general election will indeed take place as planned sometime in 2017.

Slightly different to the World Bank forecast, Credit Suisse also upgraded its projection for Thailand’s GDP growth from 2.9 percent to 3.2 percent this year. It also expects GDP in 2017 to reach 3.3 percent.

Credit Suisse agrees that the second half will be slower, but they believe “the drag from exports and tourism will be milder than initially thought.”