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The Thailand government is increasing spending to help support growth in the aftermath of the floods. Vice minister in the PM's office Kobsak Pootrakool said last week that the cabinet has approved an 115 billion Thai Bhat plan to strengthen the economy with 80 billion Thai Bhat to be spent on provincial projects, 20 billion Thai Bhat on developing small and medium-sized enterprises (SMEs) and 15 billion Thai Bhat for general purposes.
As we have argued, the government was bound to step up disaster relief efforts, followed by stimulus measures to help the affected provinces recover. However, the damage to the economy will also depend on the time it takes the floods to recede. The TCC said that the cost of flood damage to the economy is projected at 10-15 billion (equivalent to 0.1 percent of GDP) should waters recede in 1-2 weeks whereas if the floods last for around 2-3 months, the damage to the economy could come in at 85-120 billion Thai Bhat (which is around 0.5-0.7 percent of GDP).
Still, we think that the economy will recover quickly as damage from the floods is mostly limited to the farming sector. As we have pointed out, this is likely to intensify overall upward price pressures in the near term as food prices are likely to rise due to shortages and supply bottlenecks while demand for durables and healthcare supplies for disaster relief is likely to outstrip supply. Meanwhile, the impact of the floods on tourism is likely to be limited as the affected areas are not major tourist destinations.
Even if damage from the floods is more substantial than expected, the 2017 budget is likely to contain sufficient measures to help offset the slowdown. Aside from the 115 billion Thai Bhat mentioned above, the government also intends to spend 10 billion Thai Bhat to increase competitiveness in targeted industries, 15 billion Thai Bhat on a village and urban community fund while 27 billion Thai Bhat has been allocated to reserves and 22 billion Thai Bhat to the emergency budget. Moreover, public debt-to-GDP currently stands at 45.0 percent, which gives the government room to introduce additional stimulus measures if necessary.
