Threats to the economy remain with many industries still struggling, but there are reasons to be hopeful.
'Bumpy' road ahead as economy turns page
Thailand’s economic recovery momentum in the new year is expected to be “narrow and bumpy” due to headwinds affecting exports, domestic consumption and private investment, says Credit Suisse.
“While tourism should remain resilient, more difficult base effects mean the growth rate will likely be halved in 2016,” said Santitarn Sathirathai, the Singapore-based head of economic research for Southeast Asia and India at Credit Suisse.
“We are generally more cautious on private sector spending and exports.”
Credit Suisse forecasts 2016 GDP growth at 2.9%, down from 3% projected earlier.
The Bank of Thailand recently slashed its economic growth forecast for 2016 to 3.5% from 3.7%, citing external downside risks associated with the Asian economic slowdown and geopolitical conflicts denting global demand and tourist confidence.
The central bank identified drought as the main internal risk to growth.
Thailand has become more reliant on China’s domestic spending to generate export volume. China’s structural slowdown is expected to persist, led by a downturn in investment, Mr Santitarn said.
“Importantly, China is no longer just a factory that imports intermediate inputs from the region to make final products for consumers elsewhere, it has become an important final source of demand for exports from Thailand,” he said.
Anaemic export growth also has a negative implication for private investment, he said, adding that historical data suggest a cautious view in accordance with sluggish shipment growth.
Exports of goods and non-factor services are projected to grow by a modest 2% in 2016, according to Credit Suisse.
Eroding competitiveness could pose further headwinds to investment in Thailand, said Mr Santitarn, noting how giant electronics makers Samsung and LG have moved TV production to Vietnam and Panasonic has announced a relocation of its appliance factories.
“Public spending should stay robust, but the spillover into private sector spending will likely remain lacklustre,” he said.
Thai aviation sector still facing cloudy skies
One of the hottest issues facing close scrutiny in 2016 is whether Thailand will be able to remove the embarrassing red flags placed by two global aviation auditors last year.
The removal of the Civil Aviation Organization (ICAO) red flag and the reinstatement of safety ratings by the US Federal Aviation Administration (FAA) are crucial to getting the Thai civil aviation industry back on course.
Although some progress has been made to remedy the aviation safety deficiencies found by the ICAO and FAA in 2015, Thai authorities have remained slow in resolving the issues.
For the time being at least, nobody is able to offer a specific time frame for when the entire procedure to tackle the “significant safety concerns” — the term used by the ICAO — will be completed.
The uncertainty is the result of “disarray stalling air safety review, a lack of leadership, unity and discipline” on the part of the Civil Aviation Authority of Thailand (CAAT), which has replaced the now-defunct Department of Civil Aviation, whose safety oversight lapses were at the centre of the ICAO and FAA penalties.
These are the root causes pinpointed by the Command Centre for Resolving Civil Aviation Issues, chaired by Air Force commander-in-chief Tritos Sonchaeng.
The CAAT was also taken to task for failing to seek cooperation with the state sector required to solve the problems and has not committed itself to the problem-solving process.
Furthermore, the agency was charged with disobeying directives issued by the command centre, concealing information and providing false information.
The criticisms have contributed to uncertainty over whether Thailand can extricate itself from the restrictions arising from the ICAO and FAA rulings.
Until the restrictions are removed, Thai-registered airlines will be left in a state of limbo, not being allowed to pursue expansion but struggling to maintain their status quo, at best.
The essence of the ICAO’s red-flagging and the FAA’s downgrading to Category II is broadly similar, meaning that Thai-registered airlines are not allowed to open new routes, nor raise the frequencies of existing flights to foreign countries, nor change aircraft types already deployed on current services.
But the application of the ICAO’s verdict is not strictly binding, depending on the judgement of individual foreign countries, which explains why few countries have actually enforced the restrictions as guided by the global auditors.
However, there is some optimism that the entire fiasco could be fixed towards the end of 2016, but that remains to be seen.
Ripple effect sought from investment boost
Public and private investment is expected to speed up substantially in 2016, spurring income distribution to poor earners.
Supant Mongkolsuthree, chairman of the Federation of Thai Industries, said some positive factors would help accelerate public and private investment in the new year.
Those factors will include government attempts to rev up investment in infrastructure megaprojects as the global economy revives, sparking demand for exports, elevating production capacity and eventually leading to economic expansion.
“What we will see for sure is the government’s investment in mega infrastructure,” Mr Supant said. “We will see private investment grow further and at a higher rate” compared with 2015 investment, he added.
According to the Board of Investment, investment value is expected to reach a target of 450 billion baht in 2016, up from a goal of 210 billion in the past year.
“The government policy will be implemented and have a positive impact on investment, pushing public and private investment to rise further,” Mr Supant said, adding that such policies should also have a positive impact in the long term.
Another key government policy is to promote targeted industries in clusters to help boost investment in several sectors.
Oil and gas reserves rapidly wearing thin
Thailand’s domestic petroleum proven reserves are thought to have declined over the past decade from 10 years to as low as seven years.
Oil and gas exploration in the past 20 years has produced only two major natural gas resources — Arthit and the Malaysia-Thailand Joint Development Area.
Other oil and gas resources have only small volumes, such as the onshore Dong Moon gas site and the offshore Wassana oil site.
The 21st round of petroleum exploration and production has been delayed since 2007 due to protests by civilian and non-governmental groups who want energy policymakers to change the licensing method from the concession system to a new production-sharing contract system.
In response to the protests, the government amended the Petroleum Act of 1971, which will be implemented in 2016.
Major petroleum resources are under the concessions of Chevron (Thailand) on the Erawan gas field and PTT Exploration and Production Plc on the Arthit gas field. They will respectively expire in 2022 and 2023 and cannot be extended. Arthit and Erawan provide about 70% of Thailand’s gas production.
Energy Minister Anantaporn Kanjanarat said clearer directions for the future of Erawan and Arthit would be finalised this year.
Energy Policy and Planning Office director-general Twarath Sutabutr said major generating resources should be shifted from gas to coal, while the rest should come from renewable energy and imported energy from neighbouring countries.
The change from gas to coal is to avoid gas disruption, which could happen more often due to frequent maintenance.
Gas provides about 65% of Thailand’s power generation.
Policymakers say coal-fired power plant developers and operators will use state-of-the-art technology to deal with greenhouse gas emissions.
At the end of 2036, gas will provide only 35% of power supply, coal 25%, renewable energy 20% and imported power 20%.
Drought threat lingers over agriculture forecast
Drought could continue to negatively affect Thailand’s agriculture this year, trimming the outlook for the farm economy.
Thailand’s agricultural sector contracted by 4.2% in 2015 year-on-year as a result of a drought, mostly in the North and Northeast, said the Office of Agricultural Economics (OAE).
Despite an optimistic outlook from the OAE this year, the agency conceded that a water shortage caused by a delay in rainfall around May is a major risk, possibly altering the growth projection for the sector of 2.5% to 3.5%.
The El Nino climate phenomenon was blamed for lowering water levels in reservoirs and causing an insufficient rainy season last year, affecting crops and rice growing. The dry spell prompted the government to encourage farmers to postpone planting rice for two months, especially in rain-fed rice plantations. The postponement is a major reason crops contracted by 5.8% in 2015.
The OAE believes the climate this year will not be as bad as last year. Other positive factors include the government’s economic stimulus measures, higher investment in the agricultural sector and the government’s agricultural projects.
The Agriculture and Cooperatives Ministry started its farm restructuring projects in late 2015 to improve management efficiency, cut production costs and increase yields for rice and maize. The “motor pool” model was designed to support farm equipment such as harvesters and milling machines for farm cooperatives nationwide.
To deal with another drought, the ministry may ask rice farmers in 22 irrigation-fed provinces to suspend growing second-crop rice again in 2016. It also set aside a budget of 39 billion baht for the Royal Irrigation Department to add 300,000 rai of irrigation area in 2016.
Seree Supharatid, director of Rangsit University’s Center on Climate Change and Disasters, has warned that Thailand may suffer a severe dry season earlier than expected this year. With depleted water starting in the first quarter, the farm sector is likely to be affected if efficient water saving does not take place in advance, he said.
TOT’s labour union called a meeting in October 2015 to oppose plans to auction two licences on the 900MHz spectrum. TOT is among state enterprises in need of reform. PATTARAPONG CHATPATTARASILL
State enterprise reform tops cabinet agenda
A draft bill governing 57 state enterprises is set to go before the cabinet this month. If approved, it will pave the way for the establishment of a national holding company to which 12 corporatised state enterprises will be transferred in the first phase.
The national holding firm will be responsible for appointing executives and directors, serving as a buffer to prevent politicians from exploiting state enterprises for pork-barrel policies as in the past, while raising efficiency to boost revenue and scale down burdensome budgets.
The draft bill is in line with the government’s plan to overhaul state enterprises, most of which have long been influenced by politicians who appoint aides and other proxies to boards or top executive positions in order to fulfil populist campaign pledges.
The State Enterprises Policy Commission (superboard) chaired by Prime Minister Prayut Chan-o-cha found that most state enterprises have low profitability: they have combined assets of 12 trillion baht, but their aggregated annual net profit amounts to 300 billion baht — a return on assets of less than 3%.
Among the 12 corporatised state enterprises to be transferred to the holding company, wholly owned by the Finance Ministry, are PTT, Krungthai Bank, TOT, CAT Telecom, MCOT, Thai Airways International, Airports of Thailand and the State Railway of Thailand.
The remaining 45 state enterprises will be supervised by the State Enterprise Policy Office. Sepo director-general Ekniti Nitithanprapas said the bill would come into force by August.