prasarn trairatvorakul : managing the economy at a crossroads speech by dr prasarn trairatvorakul, governor of the bank of thailand, at the foreign correspondents ’ club of thailand ( fcct ), bangkok, 3 july 2014. * * * distinguished guests, ladies and gentlemen, it is my pleasure to be here once again, to address the oldest press club in southeast asia. i congratulate you for the outstanding works in thailand over these years. journalism is indeed a special profession, one whose status is sometimes hailed as “ the fourth pillar of the state ” alongside the legislature, the executive and the judiciary. such privilege comes with a somber weight of commitment to accurate reporting and balanced viewpoints. these qualities are needed more than ever today, as there is much public demand to understand the implications of the recent political development. i will share with you today my early assessment from a policymaker ’ s standpoint, regarding the latest economic outlook and key challenges to public policy lying ahead. current economic assessments first, let me give you a brief summary of where we are. the buildup of political tension late last year came at an unfortunate time for the economy. the economic activity was already hampered by weak domestic demand amid high household debt and a lackluster global economy. as the political uncertainties persisted, the repercussion on consumer and business confidence grew, denting private consumption and investment. the lack of a functioning government early this year also curtailed public finance capability, subjecting infrastructure investment to further delay and putting 2015 fiscal budget at risk. tourism, a shining sector in 2013, was increasingly weighed by security concerns. a tepid recovery in exports offers only a partial offset to softening growth, and could not prevent the overall economy from contracting in the first quarter. it is under this backdrop that the end to political stalemate in may provided some cause for short - term optimism. the first relief comes from a resumption of government spending. the presence of a fully functioning government ensures that the budget for 2015 fiscal year could be prepared on time, eliminating the risk of a thai - style “ fiscal cliff ”. an acceleration of public disbursement in the short - term is also providing a welcomed boost to the economy. plan for public investment in infrastructure is now back on track, and there have been renewed efforts to maximize the efficiency of these projects. a resumption of effective fiscal policy, in turn, lends support

to domestic demand recovery. repayment of overdue debt to farmers, approvals of backlog projects by the boi, and fresh loans to the smes provided quick relief in and of themselves, but the combined multiplier effects could also be meaningful. by shoring up income and improving overall sentiments, these measures constitute an important effort to revive private spending. fast indicators already suggest that private consumption and investment are stabilizing, and private confidence improving. we expect the recovery of domestic demand to gain more traction going forward, especially in the second half of this year. in light of these recent events, our latest growth projection for this year has been revised upward to 1. 5 percent. while this figure may be much lower than long - term potential growth of around 4 to 5 percent, it is chiefly dragged down by the first - quarter contraction – bygones if you like. from this quarter onwards, we anticipate a clear pickup in growth and a v - shaped recovery. many independent forecasters are currently holding a similar view, and most have revised up their growth projections after the political turning point in may. bis central bankers ’ speeches this brighter economic outlook is not without risks, however. exports of goods in particular have underperformed thus far this year, despite their insulation from domestic political turmoil. a number of factors are at play, some temporary, others more secular. weaker economic growth in regional trading partners, including china and asean, has been one cyclical hindrance. global trade also appears to be lagging global growth, limiting scope for emerging economies like thailand to leverage on advanced economies ’ recovery. more deep - rooted structural issues at home may also be responsible, as segments of the manufacturing sector are not integrated into the modern global supply chain. for these reasons, exports may play a less active role in its contribution to growth this year. on the financial stability front, we remain cautious but optimistic. domestically, the prolonged period of economic slowdown has subjected indebted households and smaller businesses to financial strains. loan quality for weaker borrowers has deteriorated somewhat as a result. the good news is that these risks have been confined to specific sectors, and the banking system remains strong and has weathered the slowdown very well, owing to their prudent risk management policies. externally, we also cannot rule out further episodes of volatile capital flows owing to shifts in monetary policy abroad. our economy has proven resilient to such shocks in the recent past, thanks to strong macro