Political gridlock and street protests that culminated in a military takeover of the government in Thailand in May damaged business and consumer confidence in the first half of 2014, such that gross domestic product (GDP) contracted by 0.1%. Fixed investment dropped, and private consumption fell slightly. Tourist arrivals fell by 10.4% in the first half. Net external demand rose as imports of goods and services fell more than exports, which statistically moderated the decline in GDP caused by weak domestic demand.
|Selected economic indicators (%) - Thailand||2014||2015|
|ADO 2014||Update||ADO 2014||Update|
|Current Account Balance (share of GDP)||-0.1||2.5||0.5||0.5|
Source: ADB estimates.
The restoration of public spending programs that were blocked by political and legal challenges will stimulate the economy. A backlog of applications for investment privileges is being cleared, and a revised medium-term infrastructure program has been approved. Economic growth is expected to turn up by the end of 2014, though it will undershoot the Asian Development Outlook (ADO) 2014 forecast in April. A recovery in investment and better export performance is seen generating GDP growth next year at 4.5%.
Growth should get support from a reduction last March in the policy interest rate, decided in response to the economic contraction and modest inflation. Over the first 8 months, inflation averaged 2.2%, and it is expected to stay around this rate for the rest of 2014, a touch below the previous forecast. Next year, inflation is still seen rising to 2.6% as domestic demand strengthens.
The steep decline in imports contributed to a turnaround in the trade balance and generated a large current account surplus in the first half. A current account surplus is now projected for the year as a whole, instead of a small deficit previously anticipated. Exports will pick up in 2015 in line with better growth in the major industrial economies, and tourism will recover from a contraction this year, but imports will also rebound, narrowing the current account surplus in 2015.
Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.