Thailand’s private consumption and investment growth still below potential

GDP growth came in at 2.3%, just a little short of forecast.

Despite a mediocre performance, there were a few bright spots from Thailand’s GDP report.

4Q14 GDP growth came in at 2.3% (YoY), just a little short of analysts’ forecast. Full-year 2014 GDP growth came in at 0.7%, also a tick lower than the estimate.

Government consumption growth accelerated to 5.5%, fastest in more than a year. On the industry breakdown, tourism-related sectors continued to recover towards end- 2014, with hotels/ restaurants seeing some 5% growth (QoQ, sa) in the period.

At this juncture, DBS analysts maintain their 3.8% forecast for 2015, even if they note the increasingly high downside risks.

For starters, both private consumption and investment growth are still below their respective potential. On average, contribution from these two components added up to about 1.6 %-pt of overall GDP growth in 2H14. This contribution is far too low considering that these two components have a combined share of 65% of total GDP.

Meanwhile, anything less than double-digit government consumption growth in 1H15 will be a big disappointment. In the 4 quarters following the 2011 floods, government consumption growth averaged 7.5%. To match this, fiscal spending needs to grow by an average 8.5% in the next 3 quarters. But monthly data from the fiscal policy office is not too encouraging on this front, although the focus will certainly be on the key infrastructure projects supposedly in the pipeline early this year. The longer the government drags its feet on this, the less significant the impact will be on the economy.

Any upside surprise to our GDP growth forecast this year is limited by the anaemic growth expected for exports. The government has also adjusted its export growth forecast for 2015 to 3.5% from 4% previously (DBS forecast: 5.5%). As noted previously, unless export growth returns to the double-digit territory, it is unlikely for capacity utilization to go back to the normal 65-70% level.