Thailand: Fiscal policy and the TPP

A couple of things caught attention this week. First was the indication that the government has spent 94% of its budget in the fiscal year, ending in September. The budget office added that there will be an extra stimulus of THB 128bn (about 5% of annual budget) to be spent in 4Q15. Meanwhile, Deputy PM Somkid stated that the government is studying the possibility of joining the Trans-Pacific Partnership (TPP), in light of the agreement reached this week. 

That the government has been successful in boosting the economy is clear. GDP growth would have been a mere 1.5% in 1H16 (instead of 2.9%), if not for the ramp up in public investment and consumption. As long as the private sector remains weak, the government seems willing to take the driving seat in bolstering GDP growth momentum. 

"We expect fiscal deficit to rise to as high as 3.5% of GDP in 2016", says DBS Group Research.

About the TPP, there is some concern about its potential impact on Thailand. One concern revolves around potential disruption to Thailand's market share in global trade. On this front, manufacturing comes to mind. The manufacturing sector has seen practically zero growth since 2013. This compares to the accelerating growth in countries like Vietnam, which is a member of the TPP. 

Except for the US, Canada and Mexico, Thailand already has free trade agreements with the other TPP members. And even when the TPP is fully in effect (which may take years), it is unlikely to see Thailand being completely substituted as a trading partner by, say, Vietnam. It is interesting to note that foreign investment, including in manufacturing, has actually recovered after the slump in 2013. Approved foreign investment was up 13% in 2014, and by June-15, it has reached 55% of last year's total. Thailand remains an important link in the global manufacturing supply chain and the TPP by itself is unlikely to have much of an impact.