The greatest threat to Thailand’s economic future remains its internal politics rather than rising US interest rates or the Chinese slowdown, Prasarn Trairatvorakul, governor of the country’s central bank, told Emerging Markets.
He dismissed analysts’ concerns over Thailand’s falling credit activity, tourism, auto sales and new lending, saying he expected 3% growth in the second half of this year and a mid-point of 4.8% for 2015.
Consumer and business confidence is climbing, driven partly by hopes that Thailand has put its latest round of civil unrest behind it, he added.
Like every other central banker, Trairatvorakul is watching US rates with interest. But he said Thailand was better insulated than many emerging economies from potential volatility. The trade and current accounts are in surplus, deficit spending is only 2% of GDP and foreign investors hold only 10% of Thai fixed income bonds, he said.
The equity market is more vulnerable, but that has rebounded towards 2013 highs, according to Emerging Advisors Group research.
A slowing China has already made its effects felt in Thailand, a major exporter of rubber. Prices for that commodity have plummeted on expectations of slowing Chinese growth. But China accounts for only 10% of Thai exports, the same percentage as a recovering US economy accounts for the same percentage, Trairatvorakul said.
All this leaves politics as the biggest risk to Thailand’s economy. Although in many other dimensions the country has done well, when it comes to politics Thailand has “shot itself in the foot,” said Trairatvorakul.
RETURN TO NORMALITY
The military took power in May in the form of the National Council for Peace and Order. The question now is whether the present peace will last. “In the short term no problem,” he said. “The challenge will come when you want to return to a conventional structure of three pillars of power — with an executive branch, a legislative branch, and the judiciary.”
When Trairatvorakul first met the junta they were eager to show the world that they respected the market economy, democracy and that the seizure of power was a temporary phenomenon, he said.
“I tried to explain to them that the most understandable model was these three pillars,” he said. “They are moving along that direction. They genuinely want to return to normality. It’s only a question of pace. Whether it’s a quick jump or a developmental process will be clearer when they finish.” drafting the constitution.”