The Thai economy is close to entering recession mode, given the difficulty of achieving a recovery this quarter when nearly all the normal growth drivers are still heavily weighed down by the political turmoil, according to Kasikorn Research Centre's latest analysis paper. The research house echoes previous recession forecasts for the economy by the Bank of Thailand and the National Economic and Social Development Board (NESDB).
However, the central bank acknowledged that gross domestic product in the first quarter might shrink from the previous quarter, probably resulting in just a technical recession if it showed a further dip in the current quarter.
The NESDB had shocked investors by announcing in its forecast for 2014 Thai GDP growth that the economy has already entered a real recession.
The agency predicted that GDP in the current quarter would contract by 0.3 per cent from the first quarter, and that first-quarter GDP would fall by 1.7 per cent from the final three months of 2013.
Charl Kengchon, managing director of KResearch, said the prolonged political unrest had seriously hit the economy, causing the pressure on domestic spending in the first three months.
Public investment and the tourism sector have also dipped, while the export sector has showed flat growth, he said.
Given these factors, KResearch expects GDP in the first quarter to have declined by 1.8 per cent from the previous quarter, but to have expanded 0.7 per cent on a year-on-year basis.
Export 'cannot offset negative factors'
"For the second quarter, exports are the only key driver of the economy expected to post a better performance than in the first quarter.
"Yet export growth is unable to offset all the other negative figures, such as domestic spending, tourism income, and investment expenditures - making the second quarter's economic growth rate likely to come in at 0.9 per cent, which is considered a low level," Charl said.
However, the economy in the second half has room to rebound when compared with the same period last year, which had a low base, he said.
Economic growth can be recovered if the political unrest is resolved, plus the prospects are that the export sector will significantly rebound from the economic recovery of trading-partner markets, he added.
KResearch expects the economy in the second half to expand by 3 per cent, based on overall domestic spending not yet having recovered.
The private sector will face higher funding costs and a higher inflation rate, driven by higher wage costs as well as a rise in public utility rates by the end of the year.
These factors will be taken into account by the Bank of Thailand when it considers its monetary-policy stance, said the research house. Therefore, full-year GDP is forecast to expand by 1.8 per cent, it concluded.