Thailand-Renewed Growth Prospects

Economic growth hovered around 5% in 2007, that’s quite flat on account of political instability prevailing in Thailand since Prime Minister Thaksin Sinawatra was overthrown. Though economy is expected to pick up in 2008 after containing the political solution to recent problems, the growth is expected on the ground that Thailand will be having a renewed investment and consumption demand from early next quarter. BoT (Bank of Thailand) reduced interest rates by 175 bps in 3rd Q’07 to stimulate the economy, but that did not work out. Another cut by 25 bps brought the interest rate to 3.25 %. Our year end interest rate forecasts around 3.0% or in 1st or 2nd Q’08. Rate cuts are being targeted against the deflating economy and falling asset prices, which is necessary to bring about a revival in consumption or investment growth.

Being an export dependent economy, export growth is expected to moderate or even slow down to 7.0-7.1% y-o-y 2007, if the political turmoil is not taken care off. The Thai Baht climbed 10% against the $, hurting exports and bringing down industrial competitiveness for Thailand within the ASEAN community. Trade surpluses in 2007 and renewed interest in equities (SET) and stock markets might help keep the Thai Baht strong within this quarter. Some economic recovery is expected in Q1’08 after political restructuring and reshaping the Thai politics will surely boost both consumption, investment and tourism sector revival even though tourism was least affected by the recent turmoil. Thailand has a trade surplus of around $12.84 bn, which was up from a $266bn deficit in April 2007 to a surplus of US$650 mn in May 2007. Inflation remained low till date, around 1.9%, and domestic demand is slowing down, sowing a deflationary seed. FDI rose to around US$10.46 billion, which is a good sign if the economy needs to boot up. We expect the Thai Baht to hang around THB 33-34/$ till Q2nd 2008 and the only risk to the currency this time is political.

Key Risks to Thai Economy:

· Political Instability
· Deflationary Pressure
· Export Slowdown
· US Economic Slowdown
· Sudden Capital Flight & Currency Devaluation on the political context

Positive Indicators:

· Trade Surplus
· Appreciating Baht
· Low Inflation Scenario
· Renewed Interest in Equity Markets
· Robust FDI Inflow

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