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Thailand Business Forecast Report Q1 2015

  • December 2014
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views

While Thailand’s military leaders have taken tentative steps to restore civilian rule, a return to a well-functioning democracy is far from assured. The political divide will remain unresolved, and the potential for renewed instability will continue to undermine the country’s long-term economic growth potential. Still soft domestic demand and weakness in external performance continue to keep the Thai economy sluggish. Consequently, we are downgrading our 2014 real GDP growth forecast to 0.7%, from 1.6% previously. That said, we expect growth to rebound to 4.1% in 2015 on the back of ongoing efforts by the junta to revive the economy amid renewed political stability.
We forecast Thailand’s budget deficit to narrow from an estimated 2.6% of GDP in 2014 to 2.0% in 2015, as we expect an economic rebound to shore up fiscal revenue, while the removal of the rice subsidy scheme and the fall in oil prices should keep expenditure in check. That said, should the junta pursue populist measures, this will pose downside risk to our forecast.
A n economic recovery and interest rate normalisation in the US that will likely occur in H215 would spur the BoT to raise its benchmark interest rates by 25 basis points (bps) to 2.25% in 2015. While a stronger US dollar will weigh on the Thai baht, a likely economic rebound in Thailand in 2015 and continued strong foreign direct investment (FDI) inflows will provide support for the unit. On balance, we hold a neutral outlook for the Thai baht, and are forecasting the currency to average THB32.75/USD in 2015 and end 2015 at about THB33.00/USD.

Major Forecast Changes

We have downgraded our 2014 growth forecast to 0.7% from 1.6% previously.
We have pared back our expectations for a total of 50 basis points (bps) interest rate hike in 2015 owing to global deflationary forces at play, and are now calling for just one 25 bps worth of hike. We forecast the Thai baht to average THB32.75/USD (from THB31.75/ USD previously) in 2015 and end 2015 at about THB 33.00/USD (from THB31.00 previously).

Table Of Contents

Thailand Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Risk Of Renewed Political Instability Remains 8
While Thailand's military leaders have taken tentative steps to restore civilian rule, a return to a well-functioning democracy is far from
assured. The political divide will remain unresolved and the potential for renewed instability will continue to undermine the country's
long-term economic growth potential.
table: Political Outlook 8
Long-Term Political Outlook 9
Political Woes To Persist 9
Thailand's political situation will remain highly volatile, and it is difficult to envision political stability over the next few years. Following the
military coup in May 2014, the roadmap to a return to civilian government remains unclear.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Growth Recovery To Continue On A Gradual Trajectory 14
Still soft domestic demand and weakness in external performance continue to keep the Thai economy sluggish. Consequently, we are
downgrading our 2014 real GDP growth forecast to 0.7%, from 1.6% previously. That said, we expect growth to rebound to 4.1% in
2015 on the back of ongoing efforts by the junta to revive the economy amid renewed political stability.
Table: Ec onomic Acti vit y 14
Fiscal Policy 15
Fiscal Performance To Improve In 2015 15
We forecast Thailand's budget deficit to narrow from an estimated 2.6% of GDP in 2014 to 2.0% in 2015, as we expect an economic
rebound to shore up fiscal revenue, while the removal of the rice subsidy scheme and the fall in oil prices should keep expenditure in
check. That said, should the junta pursue populist measures, this will pose downside risk to our forecast.
Table: Fiscal Policy 16
Monetary Policy 17
Accommodative Rates To Support Growth Recovery 17
We expect the Bank of Thailand (BoT) to keep its benchmark interest rate unchanged at 2.00% for the remainder of 2014 and into H115
to facilitate an economic rebound. A likely growth recovery and potential interest rate normalisation in the US in 2015 would spur the
BoT to normalise its benchmark interest rate. We forecast the BoT to raise rates by 25 basis points (bps) to 2.25 % in 2015.
Table: Monetary Polic y 17
Balance Of Payments 19
Neutral Outlook For The Thai Baht 19
While a stronger US dollar will weigh on the Thai baht, a likely economic rebound in Thailand in 2015 and continued strong foreign direct
investment (FDI) inflows will provide support for the unit. On balance, we hold a neutral outlook for the Thai baht, and are forecasting the
currency to average THB32.75/USD in 2015 and end 2015 at about THB33.00/USD.
Table: Current Account 19
Table: CURENCY FORECAST 20
Business Monitor International Ltd www.businessmonitor.com 3
Contents
Chapter 3: 10-Year Forecast 23
The Thai Economy To 2023 23
Politics A Headwind, But Won't Prevent Solid Growth 23
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 that solid growth rates are achievable assuming no major deterioration on
the political front. We project real GDP growth to average 3.9% annually (from 4.1% previously) over the next decade, versus the annual
average growth rate of 4.5% over the past decade.
Table: Long-Term Macroeconomic Forecasts 23
Chapter 4: Operational Risk 27
Operational Risk Index 27
Operational Risk 28
Table: Operational Risk 28
Transport Network 29
Table: Transport Network 30
Economic Openness 32
Table: Ec onomic Op enness 33
Table: Top 5 Trade Partners and Product Exports (USDmn unless oth erwis e st ated) 34
Table: Top 5 Product Imp orts (USDmn unless oth erwis e st ated) 35
Chapter 5: Key Sectors 37
Infrastructure 37
Table: Construction And Infrastructure Industry Data, 2012-2017 38
Table: Construction And Infrastructure Industry Data, 2013-2023 39
Oil and Gas 41
Table: Oil Production, 2012-2017 41
Table: Oil Production, 2013-2023 42
Table: Gas Production, 2012-2017 43
Table: Gas Production, 2013-2023 44
Other Key Sectors 47
Table: Pharma Sect or Key Indic ators 47
table: Telecoms Sect or Key Indic ators 47
table: Defence and Security Sector Key Indicators 47
table: Food and Drink Sector Key Indicators 48
Table: Autos Sector Key Indicators 48
table: Freight Key Indicators 48
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
Warning Signs Growing 49
Table: Global Asumpti ons 49
Table: Developed States, Real GDP Growt H, % 50
Table: BMI VER SUS BLO MBER G CON SEN SUS REAL GDP GRO WTH FORE CASTS, % 50
Table: Em ergi ng Markets , Real GDP Growth , % 51

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