Thailand: Thai government introduces new stimulus package to revitalize the underperforming economy
September 22, 2015
In early September, the Thai government announced a package of short-term stimulus measures worth THB 342 billion (USD 9.58 billion) in an effort to jumpstart the sluggish economy. This is the second stimulus package that the military government has introduced since it came into power last year in May. The Thai economy has been in the doldrums this year as weak domestic demand paired with plummeting exports are dragging on growth. Moreover, low commodity prices have cut farmers’ incomes significantly and high household debt has curbed private consumption. While the new measures represent a sizable stimulus for the economy (2.6% of GDP), the actual boost to growth they will represent is still unclear given sluggish exports and weak confidence. The timing of the implementation will be key in determining the effect of the new stimulus package.
In presenting the package, Prime Minister General Chan-o-cha gave a breakdown of how the funds will be used. Nearly one-third of the funds will go to small- and medium-sized enterprises (SMEs) in loans and tax breaks. A large number of SMEs are facing liquidity problems as a result of slow economic growth and weak domestic consumption. Moreover, banks have barely extended new loans over fears of non-performing loans. The new measures are aimed at encouraging firms to spend and invest more. Another good share of the money will be used to boost rural household spending through the “Village Funds” scheme. Farmers will benefit from cheap loans and the government will invest in rural development projects. The impact that these measures will have on domestic demand is still unclear given the large household debt burden and weak private consumption.
According to the government, the stimulus package is expected to boost growth in economic activity by 0.4 percentage points this year thus bringing economic growth for this year to 3.0%. The Central Bank expects the economy to expand 3.0% this year as well before accelerating to 4.1% next year. However, the FocusEconomics Consensus Forecast panel is less optimistic than the government and the Central Bank. This month, panelists downgraded their GDP forecast for 2015 by 0.2 percentage points amid headwinds arising from low external demand and political uncertainty regarding the next democratic elections. The panel forecasts the economy to grow 2.8% in 2015 and 3.6% in 2016.
Author: Dirina Mançellari, Senior Economist