The Thai economy expanded at its fastest rate in four years during the second quarter of 2017, exceeding forecasts. The growth was partly fuelled by a surge in farming output and tourism but analysts say domestic demand and political instability have hampered growth.
Thailand’s GDP rose by 3.7 per cent year on year during the three months until June, after expanding 3.3 per cent in the first quarter, the National Economic and Social Development Board said.
At the same time, the authorities are struggling to cap gains in the baht after it surged 7.9 per cent against the dollar this year, making exports less competitive. The Bank of Thailand, which has held its benchmark interest rate unchanged at 1.5 per cent for more than two years, said this month that the currency’s strength could hurt business. The bank has been reluctant to lower interest rates amid high levels of consumer debt.
Gareth Leather, an economic adviser at Capital Economics, said the political climate could destabilise economic progress.
“The key risk for the economy is the uncertain political outlook. Not only have elections been repeatedly delayed, but provisions within Thailand’s new constitution allow for the installation of an unelected prime minister. There is a strong possibility of renewed unrest if the electorate feel the military government is backtracking on its commitment to return the country to civilian rule,” Leather told the Financial Times.
Eugenia Fabon Victorino, a regional specialist at ANZ, said trade and public spending “continued to do the heavy lifting”, while growth in investment over the last two years had been weak and domestic demand was limited.
ANZ projected growth for the whole of 2017 at 3.5 per cent. The military government’s forecast is between 3.5 per cent and 4 per cent.
Victorino said: “Looking ahead, domestic demand must pick up if the recovery is to be sustained. While goods trade and tourism have so far provided a comfortable cushion to growth, the persistently low utilisation rate will cap further gains in GDP.”
Thai exports which secured higher values include rice, rubber, vehicle parts, machinery, mechanical equipment and petroleum-based goods, whereas the exports that underperformed included automobiles, air conditioners and, rather randomly, tapioca.
Exports to China, the European Union, the United States, Japan and Asean have increased but those to West Asia and Australia fell.
Bangkok remains the engine driving the Thai economy. Picture credit: Asean Economist