Economic growth in the third quarter fell to 3.3 per cent, the NESDB announced yesterday and blamed trade tensions between the United States and China as a key factor for the slower growth.

Gross domestic product grew 3.3 per cent year on year in the third quarter this year, compared to 4.6 per cent in the previous quarter. Seasonally adjusted growth quarter on quarter is zero. In the first nine months of the year, the Thai economy grew on average by 4.3 per cent.

Growth was driven mainly by domestic demand while external demand slowed, Thosaporn Sirisumphand, the NESDB secretary-general, told a press conference yesterday.

Household consumption rose 5 per cent year on year, accelerating from 4.5 per cent in the second quarter; private investment expanded by 3.9 per cent, compared to 3.2 per cent in the previous quarter; and public investment increased by 4.2 per cent, down from 4.9 per cent.

Exports of goods and services, meanwhile, declined by 0.1 per cent in contrast to a 6.8-per-cent rise in the second quarter.

Merchandised exports in real terms decreased by 0.2 per cent in contrast to a rise of 7.4 per cent in the previous quarter.

Contraction of exports of agricultural products was attributed mainly to lower rubber exports due to China’s high rubber stock levels – China is one of the major rubber importers.

Trade barriers

Exports of some products fell due to direct and indirect effects from the trade barriers. One factor that contributed to the decline in exports of integrated circuits to China was the trade war. Exports of washing machines and solar cells also declined due to US safeguard tariffs to protect domestic manufacturers.

Overall export value decreased in some regions such as US, China and Australia whereas markets were found for expansion in Japan, the European Union, Asean and the CLMV (Cambodia, Laos, Myanmar, Vietnam), said the NESDB.

“Trade tensions partly affected Thailand’s trading partners, leading to weaker demand for Thai goods,” said Thosaporn.

The state think-tank forecast full-year growth at 4.2 per cent and 2019 growth at between 3.5-4.5 per cent.

Trade tensions have affected the global economy in the short run similar to what happened in the 1980s – known as “Plaza Accord” – when the US forced Japan to increase the value of the yen, leading Japanese firms to move their production facilities to Thailand and Asean.

In the long run, Thailand is likely to benefit when the trade war eases and companies adapt to the new trade rules. According to one survey of foreign companies in China, 50 per cent of them were thinking of relocating their production facilities out of China. Among them, 35 per cent want to move to Asean countries and another 15 per cent to Mexico, India and Bangladesh.

“Vietnam has already benefited from the trade tension, as US importers are importing more household goods from Vietnam to avoid the high tariff rate on Chinese products,” said Wichayayuth Boonchit, NESDB deputy secretary-general.

Slower growth in the third quarter was not so bad, partly because of the high base last year, he said.

Domestic demand would continue to play an import role next year, according to the NESDB.

Public investment is projected to increase 6.2 per cent from an estimated 5 per cent growth this year. Private investment would rise 4.7 per cent, compared to 3.7 per cent projected for this year. Private consumption is projected to expand 4.2 per cent, slightly decelerating from 4.7 per cent this year.

Export of goods in dollar terms would expand 4.6 per cent, decelerating from an estimated 7.2 per cent.

Current account surplus-to-GDP is estimated to be 5.8 per cent in 2019, slowing down from 6.4 per cent this year.

Inflation measured by consumer price index would remain low at about 0.7-1.7 per cent, compared to an estimated 1.1 per cent this year.

Separately, Don Nakornthab, senior director for economic and policy department at the Bank of Thailand, was optimistic of growth in the fourth quarter of this year, saying the growth rate would be higher than in the third quarter, but admitted that there were a lot of uncertainties ahead.

In the first nine months of this year, Bt230.55 billion has been invested in the EEC, showing an increase of up to 117 per cent compared to the same period last year, Duangjai Asawachintachit, BoI secretary-general, said yesterday at Government House. She was there to meet with Prime Minister Prayut Chan-o-cha.

“We are confident that this figure will reach Bt300 billion by the end of this year, especially with the investment promotion packages we plan to implement after today’s meeting,” she asserted. The first investment package aims to improve the country’s grassroots economy by offering tax exemptions to investors who provide training, technological aid or financial aid to local businesses in the agriculture or tourism industries.

Under this package, investors must spend at least Bt1 million in either of the two industries. If the investor chooses to invest in more than one area, they must commit at least Bt200,000 to each area, so meaningful economic development can take place, Duangjai said.

“The investor can choose to provide training or new machinery to the local community. Investors will not be required to provide aid to businesses that are in the same industry as they are,” she added.

If the investor meets these requirements, he or she will get tax exemption for three years in their current business. They will also get a tax exemption of up to 120 per cent of the total cost of the support provided to local communities, such as the cost of training or new machinery, she said.

The grassroots economy investment package will run from January 2, 2019 until the end of 2020.

Under the second package, investors will get tax exemption if they invest in the development of smart cities under the Thailand 4.0 initiative, such as spending on infrastructure, providing a “smart environment” or developing smart technology, she said.

“Companies investing in smart cities can get tax exemption for up to eight years if they fulfil all requirements. Furthermore, if these investors set their businesses up in the EEC region, they will also get an additional five years of a 50-per-cent reduction in corporate income tax,” Duangjai added.

Another BoI initiative to boost investment in the Kingdom is encouraging more companies to list in the Stock Exchange of Thailand (SET). Once listed, these companies will get tax exemption for 100 per cent of their total investment, not including the cost of land and working capital. This initiative kicked off yesterday and will be in effect until December 30, 2020.

Despite the volatile stock market, fragile global economic situation resulting from the ongoing US-China trade war, slow growth in the third quarter and uncertainty surrounding the upcoming election, Duangjai offered assurance that both local and foreign investors still had confidence in Thailand. Though she did not disclose the target investment for 2019, she maintained that total investment in the EEC will reach Bt300 billion by the end of this year.

Gross domestic product grew 3.3 per cent in the third quarter this year, compared to 4.6 per cent in the previous quarter.

Growth was driven mainly by domestic demand while external demand slowed, Thosaporn Sirisumphand, secretary general of the NESDB told a press conference on Monday.

Household consumption rose 5 per cent year on year, accelerating from 4.5 per cent in the second quarter; private investment expanded by 3.9 per cent, compared to 3.2 per cent in the previous quarter; and public investment increased by 4.2 per cent, down from 4.9 per cent.

Exports of goods and services meanwhile declined by 0.1 per cent in contrast to a rise of 6.8 per cent in the second quarter.

The state think-tank forecast full year growth at 4.2 per cent and 2019 growth at between 3.5-4.5 per cent.

The WTO dispute panel on Monday released its report that said Thailand has failed to implement the recommendations and rulings of the Dispute Settlement Body (DSB) to bring its measures into conformity with its obligations under the Customs Valuation Agreement (CVA) and the General Agreement on Tariffs and Trade (GATT).

The ruling can still be appealed.

The issue concerns the valuation of cigarettes imported by Philip Morris Thailand Limited from Philip Morris subsidiaries in the Philippines and Indonesia.

The Thai Customs Department is waiting for its spokesperson, Chaiyuth Kamkoon, who attended a meeting with DSB to return to Thailand before deciding on its next move.

In 2008, Philip Morris Philippines filed a complaint against Thai fiscal and customs measures affecting cigarettes from the Philippines, including customs valuation, excise tax, health tax, value added tax, retail licensing requirements and import guarantees imposed on cigarette importers.

The company claimed that the measures resulted in unfair treatment of imported cigarettes.

The dispute panel ruled in favour of the Philippines in late 2010, that Thailand’s tax treatment on Philippine tobacco exports was contrary to multilateral trading rules.

Opening the SET in the City 2018 event yesterday, Somkid said the Stock Exchange of Thailand should target those businesses or firms that it would want to see on the local bourse and examine the information on them at the Board of Thailand. The SET should work actively to analyse any potential obstacles to fundraising and work on solutions.

“Now, China and Japan have a policy to join up for overseas investments. This development presents as an opportunity to attract investment into Thailand,” Somkid told those at the event, which is being held at Siam Paragon Hall until November 18.

“It’s an opportunity for the Thai exchange to see new listings of new businesses from across the New S-Curve, AI and R&D. What should we do to have these businesses join with Thai firms on investment for a listing on the exchange, which could become a regional hub for stock trading?”

No matter the state of the global economy, the Thai capital markets remain strong and will become a regional hub, said Somkid, expressing his confidence that the local capital markets will see increasing interest from foreign investors.

“My dream is that the Thai capital markets will become a regional hub, which will help our neighbouring countries as sources of funds. I want the stock exchange to reach the digital age, as all connections with other stock markets and investment will be done through digital technology in the future,” Somkid said.

In regard to the proposed long-term equity funds (LTFs) for which the existing LTFs’ tax privilege programme will end next year, Somkid said that the Finance Minister will consider the proposal in details and improve them to give opportunities for both the young and old to secure long-term savings.

“Regarding the existing one which will expire (tax privileges from LTF investment), the Ministry of Finance will tell us whether to review or improve them. We don’t want to rush on this as the privileges will expire in 2019,” he said.

Pakorn Peetathawatchai, president of the SET, said that technological advances had prompted rapid and dramatic changes in all industries, leading to an evolving environment.

“Technology at the bourse has been used to keep and analyse information for the development of new services and tools extending from online account opening processes, investment portfolio arrangement and planning for stock selection for convenient investment to personalised needs and lifestyles and higher efficiencies,” he said.

The SET has teamed up with more than 100 organisations to stage SET in the City this year. Commercial banks, brokerages, asset investment companies and insurance companies are presenting their services at the event. Investment portfolios designed under the concept of “Total Wealth Solution” were unveiled, consisting of stocks, mutual funds, derivatives and insurance policies. A new product, TFEX Gold Online Futures, was also introduced at the event.