Coming off a weak 2014, with economic growth of just 0.7%, Thailand’s economy staged a slow but steady recovery year-to-date (YTD), and is well placed to build momentum into 2016.
GDP expanded by 2.9% in the third quarter, above market expectations, driven by stronger export demand and higher levels of public spending, as the impact of the government’s investment programmes began to register.
This growth is expected to continue into 2016 and beyond, as Thailand ramps up capital expenditure on infrastructure, with transport, communications, technology and industry set to be among the key beneficiaries.
Cautious optimism
Though GDP growth steadily regained momentum in the second half of the year, the Bank of Thailand (BOT) has maintained its economic forecast of 2.7% growth, hinting that it may downgrade that estimate later this year on weaker demand from the Chinese and Asian markets.
Manufacturing output remained sluggish for much of the year, though factory production began to pick up in the fourth quarter, as the automotive sector ramped up activity. Meanwhile, agriculture posted negative growth in 2015 due to lower commodities prices and El Niño-induced droughts, which negatively impacted rice production.
Though the third quarter saw a marginal increase in household spending, consumer confidence is still lagging, suggesting consumers may still be wary after an extended period of sluggish economic performance and low inflation.
Looking ahead
GDP is expected to climb to 3.7% in 2016, according to the BOT, though some projections suggest growth could be even higher, due to an anticipated 8-9% increase in investment from the public and private sectors. According to Atchaka Sibunruang, minister of industry, average annual investment growth of 9% in 1994-2003 led to GDP growth of more than 5% per annum over the period.
The country will also be looking to low interest rates to spur growth. In early November the BOT announced it was holding its benchmark lending rate at 1.5%, some 25 basis points off its record low in 2010.
While rates could rise again next year in order to stave off outflows triggered by an anticipated US interest rate hike, the bank has signalled its intent to support the government’s economic stimulus programme by providing consumers and investors with access to affordable credit and encouraging spending.
Lower interest rates could also help rally weak inflation. According to data from the Ministry of Commerce, headline inflation was down 0.77% year-on-year in October.
Despite prices falling for the 10th consecutive month, October did see a slight month-on-month increase in headline consumer price inflation as a result of seasonally elevated retail fuel and food prices, and core inflation, which excludes fuel and food, was up 1.11% YTD. Continued economic recovery could further boost domestic demand and help return inflation to positive territory.
Positive sector signals
With interest rates already near record lows, the government will be looking for a planned stimulus package to assist development and promote investment in sectors identified as key growth drivers. Expected to be unveiled in 2016, the programme will likely benefit the automotive, construction and technology industries in particular.
The new package follows on measures announced in October, including a permanent reduction in corporate tax to 20% and a temporary real estate transfer tax cut, from 2% to 0.01%, for six months.
The property market is also poised to benefit from state investment in transport infrastructure, with upgrades planned for the country’s road and rail network. Improved access to planned special economic zones and areas outside of the main population centres will also drive real estate and property development activity in 2016, expected to grow by 5-10%.
Additionally, Thailand is on track to exceed its tourism target of 28.8m visitors in 2015. While arrivals dipped temporarily after the bombing of Bangkok’s Erawan shrine in August, year-end inbound tourist numbers are now set to surpass 30m, according to government forecasts, having passed the 26m mark in November.
One of the country’s largest foreign currency generators, the sector is also forecast to start on positive footing in 2016, with 80% of rooms already booked at popular resort centres like Phuket for end of the year celebrations, according to local media reports.
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