Holiday tax cut expected to liven GDP

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The government's plan for increased holiday tax breaks to spur domestic consumption in December will boost economic growth to 3% this year, says the Thailand Development Research Institute (TDRI).

Kirida: Sees volatility in capital flows

"Thailand's gross domestic product (GDP) will expand by 3% this year as exports are expected to improve to zero growth from last year's contraction of 6%, while the holiday tax break and other stimulus measures will also lend support," said director Kirida Bhaopichitr.

TDRI estimates that the tax break, which is aimed at triggering a shopping spree amid stalling consumer confidence and spending, will bolster sentiments in the final month of this year, but it could add less than one percentage point to GDP growth, she said.

The Finance Ministry will soon seek cabinet approval for the tax breaks, which are more aggressive this year, doubling the cap on claimed value to 30,000 baht per individual taxpayer from 15,000 last year. The shopping period will also be lengthened from last year's seven days to the entire month of December.

Ms Kirida forecasts 2017 economic growth will be 3.2%, assuming that export growth ranges between zero to 1%, the tourism sector will expand by 5-7% and the recovery in domestic consumption will gain speed as public spending ramps up.

GDP grew by 3.2% year-on-year in the July-September period as consumption and public spending slowed from 3.5% growth in the second quarter, compelling the National Economic and Social Development Board to slash its economic growth forecast to 3.2% this year from 3.3% previously predicted.

For the first nine months, the economy registered an average of 3.3% growth.

Given the divergence of the global economic recovery, the potential US interest rate hikes, and uncertainties from Donald Trump's inward-focused policy, greater volatility in capital flows next year is expected, Ms Kirida said.

If the new US president employs tougher trade measures against China, Thailand and other Southeast Asian countries could reap a capital inflow windfall, she said.

Local business sentiment improved slightly to 49.5 in November from October's 49.2 reading due to stronger confidence in production and new order subindices from the manufacturing sector, according to the Bank of Thailand's Business Sentiment Index.

The index remains below the 50-point mark that splits optimism from pessimism.

Despite this, the report's respondents estimate that business conditions will improve over the next three months, especially in the manufacturing sector.