Thai prosperity
Thailand is on an economic roll, with the stock market and investor confidence high following recovery from the devastating floods of. But a deteriorating rice situation is threatening the positive outlook
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If you took to the streets of Thailand in April, you would have doubtless been treated to a complementary bath. Revelers sprayed each other with water guns as part of the various water dousing antics marking Songkran , or traditional Thai New Year celebrations. Songkran isn‘t the only reason Thais have to celebrate: the country’s economy is currently thriving and its stock market is wooing investors from both Japan and Europe.
The National and Economic and Social Development Board (NESDB) forecasts that Thailand‘s GDP will grow between 4.5% and 5.5% this year, driven by rising investment and domestic demand, says Raymond Chan, CIO Equity Asia Pacific. In addition, the SET index is marching towards a level of 1600, after bottoming out in late at around 400. “It has taken almost two decades for SET to get back to the all-time highs seen in,” says Chan.
With core inflation resting at 1.6% in January and headline inflation at 3.4%, inflation also appears to be under control, he adds. In the long-term, economic prospects are largely upbeat. Under the government’s long-term economic strategy, Thailand will serve the broader ASEAN region under the ASEAN Economic Community. In addition, aggressive spending on infrastructure is planned to modernize the country’s rail and road network.
LONGER-TERM RISKS
One sticky issue that may derail investors’ enthusiasm, however, is the country’s deteriorating rice situation. This follows a government strategy of paying farmers a significant premium, in excess of global prices. Thai farmers believe that the government will buy all the rice they can grow and therefore have been driving up yields, risking damaging the quality. As a result, warehouses are filled to the brim with as much as 15 million tonnes of deteriorating stockpiles of the grain, says Chan. With the harvest looming later this year, the government needs to clear warehouses of 4 to 5 million tonnes by selling off the stored rice at a loss.
“The situation requires close attention because, eventually, this loss will hit the government coffers,” says Chan. “Rice subsidies, if not handled properly could blow a hole in the fiscal balance.”
Another risk is the fact that the economy is operating close to full capacity. Unemployment, meanwhile, has almost reached a record low level, with businesses complaining of a shortage of labor. Further growth could exacerbate competition for resources. And escalating wages will, sooner or later, hit companies’ profitability, adds Chan. “The economy is operating at full capacity and how this will affect the medium-term inflation outlook or corporate profitability remains to be seen.”
