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Thailand Business Forecast Report Q4 2012

Thailand Business Forecast Report Q4 2012 - new country guide report published

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2013-01-01 02:39:54 - Thailand Business Forecast Report Q4 2012 - a new country guide report on

Recent economic data across the region continue to indicate a sustained slowdown in exports. We believe that the true extent of trade linkages between China and economies in the South East Asian region, and the resulting implications of an economic slowdown in China on the Thai economy, have been underappreciated by Thai policymakers.

We are maintaining our below-consensus outlook for real GDP growth to come in at just 4.0% in 2012, and we anticipate further downgrades by the government over the coming months. Headline consumer price inflation (CPI) in Thailand has remained on a steady downtrend since late 2011, and we believe that there is sufficient slack in the economy to keep inflationary pressures in check. We are maintaining our view



that we will see a 25 basis points rate cut by the end of the year. Thailand´s fiscal position is poised for further deterioration in the near term.

We are forecasting a budget deficit of around 3.2% of GDP in 2013, increasing slightly from a projected 3.0% this year. We see risks where failure to withdraw welfare subsidies and raise taxes down the road could harm the country´s fiscal position and economic stability over the longer term. Nonetheless, we believe that plans to address the fiscal deficit are within reach given that we see economic growth picking up in 2013 and 2014. Thus, tax revenues should see a steady expansion over the coming years. Accordingly, we expect a steady reduction in the budget deficit from 2014 onwards before achieving fiscal balance by around 2017.

Major Forecast Changes

Thailand recorded a substantial current deficit of US$2.5bn in Q212. We believe that this current account deficit will be transitory. Nonetheless, we have downgraded our full-year 2012 forecast for Thailand´s current account surplus to come in at just 1.7% of GDP, down from 3.0% previously.

Key Risks To Outlook

Downside Growth Risks From Rising Commodity Prices: Should commodity prices resume an upward trend through 2012, we could see the central bank adopting a more hawkish stance on monetary policy. Higher interest rates, combined with a stronger Thai baht, would put considerable downside pressure on economic growth.

Upside Long-Term Growth Risks From Political Reconciliation: Political uncertainties have resulted in depressed foreign direct investment in the economy. However, reconciliation efforts and economic reforms to distribute wealth more equally among the population could eventually help to bridge the political divide in Thailand. This would provide a significant boost to investor sentiment and pave the way for a surge in foreign direct investment inflows and robust economic growth.

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