Thai political crisis may curb growth if infrastructure projects delayed

BANGKOK - Political unrest in Thailand that has forced the prime minister to call an early election could further delay infrastructure projects expected to support the economy in 2014 and hit tourism, possibly sending the current account into deficit.

The government has plans to spend 2 trillion baht (S$78.1 billion) on infrastructure projects between this year and 2020, which would boost growth and investment at a time of tepid global demand.

Even before the latest political unrest, the projects - intended to lift GDP by at least one percentage point per year - have been delayed by legal hurdles.

The opposition has asked Thailand's constitutional court to decide if it was legal for such huge projects to be funded off-budget, and the court on Wednesday agreed to hear the case.

Even if the court decides quickly, which is unlikely, there will be further delay because embattled Prime Minister Yingluck Shinawatra has called a snap election for Feb. 2, so the plans have to be put on hold until a new government is formed. Meantime, the political crisis continues.

"We are currently pencilling in GDP growth at 4.5 per cent in 2014, but this is dependent on the government's ability to execute the infrastructure projects," said economist Gundy Cahyadi with DBS Bank in Singapore.

"The negative feedback loop from failure to once again deliver these projects will be significant," he said, adding that without the boost from public works, growth could again be below 4 per cent next year.

Economist Nuchjarin Panarode with Capital Nomura Securities said she had expected little support from the projects next year after earlier delays, and she predicted growth of 3.8 per cent for 2014 after 3.1 per cent for this year.

The infrastructure projects include high-speed railways, highways and mass-transit networks in Bangkok.

A separate 350 billion baht flood management programme has gone nowhere since being halted by a court in June pending environmental impact assessments. The programme is meant to prevent a repeat of 2011's severe floods, which slashed GDP growth that year to 0.1 per cent.

Needed: A working government

Bank of Thailand Governor Prasarn Trairatvorakul has said he is more concerned about a decision-making vacuum than the level of public spending. "The government is a key mechanism to get the economy going," he told reporters late on Wednesday. "Fast or slow disbursements will have an impact, as we know, but having a working government or not is more important."

Protesters who have rallied in Bangkok for weeks want to oust Yingluck and install an unelected administration. The movement appears to have little in the way of a policy platform, especially on the economy.

On Nov. 27, the central bank's monetary policy committee (MPC) cut its policy rate by 25 basis points to 2.25 per cent. It said the political situation could hurt sentiment, affecting private spending and tourism, as well as delay public spending and investment.

Capital Nomura's Nuchjarin expects another rate cut by March due to the risks to growth from politics.

Growth projections cut

At the last meeting, the MPC cut its growth projection for 2013 to around 3 per cent from 3.7 per cent and its 2014 estimate to about 4 per cent from 4.8 per cent.

The unrest sent Thai consumer confidence to its lowest level in nearly two years in November, when the trouble started, and could scare off foreign tourists in what is the peak season. Tourism accounts for 8-10 per cent of GDP. "Large tourism-related services receipts have been one of the few factors propping up Thailand's current account balance. The loss of this tourism-related buffer could shift the current account balance back into deficit," J.P. Morgan said in a note on Tuesday.

During Bangkok's bloody 2010 political turmoil, tourist arrivals fell sharply.

This time, 39 countries have issued travel warnings on Thailand but arrivals rose 5.2 per cent in Dec. 1-10 from a year before, according to the Department of Tourism. That may show a slowdown after an increase of 21.2 per cent from a year earlier in January-November.

Some tourists appear to be giving Bangkok a miss. Arrivals at the capital's Suvarnabhumi airport dropped 4.13 per cent in Dec. 1-10 compared with a year before, but jumped 18.5 per cent at the airport on the resort island of Phuket for Dec. 1-8.

[[nid:62336]]