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Thailand Business Forecast Report Q4 2014

  • September 2014
  • -
  • Business Monitor International
  • -
  • 48 pages

Core Views
With General Prayuth Chan-ocha being elected as Interim Prime Minister, the junta has gained full control of governance. Huge power amassed by the Junta could be left unchecked, risking a further deepening of the political divide. Political reforms, meanwhile, continue to lack clarity. While near-term stability bodes well for the economy, we maintain our downbeat outlook on Thai politics. While Thailand’s economy has rebounded in Q214, we believe it has yet to turn the corner, as domestic demand has remained soft. That said, ongoing efforts by the junta to revive the economy will likely gain momentum. We are forecasting real GDP growth of 2.0% in 2014 and 4.1% in 2015. Policy uncertainty under military rule and high household debt remain salient risks in our view.

We expect Thailand’s budget to be ready at the start of FY2014/15, which will be a positive for the economy. The junta has exercised fiscal restraint while planning for the budget and we believe this is likely to keep the country on a sustainable fiscal trajectory in 2015. That said, should the junta pursue populist measures in a bid to stay
in power, this will pose downside risks to our forecasts. We believe the Bank of Thailand (BoT) will maintain its growth bias, and are projecting the central bank to hold its benchmark repurchase rate steady at 2.00% for the remainder of 2014. That said, an economic rebound over the coming quarters will likely see the BoT start to normalise its benchmark rate in 2015. We therefore expect a total of 50 basis points (bps) worth of rate hikes in 2015.

Political and social stability in Thailand, coupled with a likely growth rebound over the coming quarters, should provide considerable support for the currency. We hold a neutral outlook for the Thai baht, and are forecasting the unit to average THB32.50/USD in 2014, followed by a mild appreciation to THB31.75/USD in 2015.

Major Forecast Changes
We have revised our current account forecast for 2014 to 0.8% of GDP from -0.4% of GDP previously, which would mark the first surplus since 2011. This reflects our expectation for the domestic savings rate to rise while exports outperform domestic demand. We still expect exports to barely grow in 2014, with the increase in the
surplus coming from falling imports.

Table Of Contents

Thailand Business Forecast Report Q4 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics.. 8
Short-Term Stability Belies Long-Term Political Concerns8
With General Prayuth Chan-ocha being elected as Interim Prime Minister, the junta has gained full control of governance. Huge power
amassed by the Junta could be left unchecked, risking a further deepening of the political divide. Political reforms meanwhile continue to
lack clarity. While near-term stability bodes well for the economy, we maintain our downbeat outlook on Thai politics.
TABLE: Political Overview..8
Long-Term Political Outlook 9
Politics Remains A Challenge...9
Thailand's political situation will remain highly volatile, and it is difficult to envision political stability over the next few years. Following the
recent coup in May, the roadmap to a return to civilian government is unclear, and we expect the political situation to remain very volatile
over the coming years.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
Economic Activity .. 14
Expecting Firmer Growth Ahead.14
While Thailand's economy has rebounded in Q214, we believe it has yet to turn the corner, as domestic demand has remained soft.
That said, ongoing efforts by the junta to revive the economy is likely to gain momentum. We forecast real GDP growth of 2.0% in 2014
and 4.1% in 2015. Policy uncertainty under military rule and high household debt remain salient risks in our view.
TABLE: Economic Acti vit y..14
Fiscal Policy. 16
Positive Fiscal Development Under Junta's Watch...16
We expect Thailand's budget to be ready at the start of FY2014/15, which will be a positive for the economy. The junta has exercised
fiscal restraint while planning for the budget, and we believe that this will likely keep the country on a sustainable fiscal trajectory in
2015. That said, should the junta pursue populist measures in a bid to stay in power, this will pose downside risks to our forecasts.
TABLE: Fiscal Policy16
Monetary Policy... 17
Weak Economy To Retain Current Low Rates...17
We believe the Bank of Thailand (BoT) will maintain its growth bias, and are projecting the central bank to hold its benchmark
repurchase rate steady at 2.00% for the remainder of 2014. That said, an economic rebound over the coming quarters will likely see the
BoT start to normalise its benchmark rate in 2015. We therefore expect a total of 50 basis points (bps) worth of rate hikes in 2015.
TABLE: Moneta ry Polic y17
Exchange Rate Policy. 18
Renewed Political Stability To Stem Further Baht Weakness..18
Recent political and social stability in Thailand, coupled with a likely growth rebound over the coming quarters, should provide
considerable support for the currency. We hold a neutral outlook for the Thai baht, and are forecasting for the unit to average THB32.50/
USD in 2014, followed by a mild appreciation to THB31.75/USD in 2015.
TABLE: CURENCY FORECAST..18
TABLE: Current Account...19
Chapter 3: 10-Year Forecast... 21
The Thai Economy To 2023 21
Politics A Headwind, But Will Not Prevent Solid Growth..21
Ongoing political uncertainty, deteriorating demographic trends, and a lack of reform momentum are likely to undermine Thailand's real
GDP growth over the next decade, although we still believe solid growth rates are achievable assuming no major deterioration on the
political front. We now project the economy to average 3.9% real GDP growth over the next decade, versus our previous projection of
4.1%, and the average rate of 4.5% seen over the past decade.
TABLE: Long-Term Mac roec onomic Forecasts 21
Chapter 4: Business Environment. 27
SWOT Analysis 27
BMI Business Environment Risk Ratings.. 27
Business Environment Outlook. 28
Table : BMI Busi nes And Ope rati on Ris k Rati ngs 28
Institutions... 29
Table : BMI Legal Framew ork Rati ng 29
Table : Lab our Force Qualit y .30
TABLE: ASIA - ANUAL FDI INFLOWS31
Table : Trade And Investme nt Rati ngs 32
Infrastructure... 33
Market Orientation... 34
TABLE: Top Export Desti nati ons (USDmn)34
Operational Risk.. 35
Chapter 5: Key Sectors.. 37
Telecommunications... 37
TABLE: Telec oms Sect or - Mobile - Hist orical Data and Forecasts 38
TABLE: Telec oms Sect or - Wireli ne - Hist orical Data and Forecasts 39
Freight Transport. 39
TABLE: Rail Freight..42
TABLE: Road Freight42
TABLE: Air Freight42
TABLE: Inland Waterway Freight...42
TABLE: Maritime Freight .42
Other Key Sectors... 45
Table : Infrast ructu re Sect or Ke y Indicat ors...45
Table : Defe nce and Secu rit y Sect or Ke y Indicat ors45
Table : Oil and Gas Sect or Ke y Indicat ors.45
Table : Food and Drink Sect or Ke y Indicat ors.46
Table : Aut os Sect or Ke y Indicat ors...46
Table : Pha rma Sect or Ke y Indicat ors46
Chapter 6: BMI Global Assumptions. 47
Global Outlook. 47
Eurozone Downgrade On Poor Q214..47
Table : Global Assumpti ons.47
Table: Developed States, Real GDP GrowtH, %...48
Table : BMI VERSUS BLOO MBERG CON SENSUS REAL GDP GRO WTH FOR ECASTS, %. 48
Table : Eme rgi ng Markets , Real GDP Growth , %..49

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