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Thailand Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

The passage of Thailand's new constitution is positive for short-term political stability and economic growth and will pave the way for elections in 2017. However, from a long-term perspective it will likely deepen Thailand's large societal divide and potentially undermine economic growth. Thailand's relatively strong Q216 real GDP growth print supports our view of an acceleration of full-year growth to 3.0% in 2016 and 3.5% in 2017. The tourism sector was a key driver of growth, but faces downside risks from the potential for a flare up in political instability and slowing Chinese growth, but ongoing public infrastructure projects and a recovering manufacturing sector should support growth. We continue to expect the Bank of Thailand (BoT) to maintain its benchmark interest rate at 1.50% over the coming quarters even as headline CPI rises. The inflation cycle has likely turned and the bond market is signalling the potential for higher inflation expectations, but CPI is likely to remain at the lower end of the BoT's 1.0%-4.0% target band over the medium term. We continue to see gradual further Thai baht strength amid low inflation and favourable terms of trade dynamics, which continue to support the country's saving rate. However, risks are weighted to the downside given the risks posed by the ongoing slowdown in China and the weakening of the Chinese yuan. The Thai government has ramped up spending this year as part of its ongoing infrastructure investment programme, with capital spending rising 24.0% y-o-y for the January-July period. Given the productive nature of such expenditure, we do not expect to see fiscal sustainability deteriorate notably.Major Forecast Changes We have made some slight revisions to Thai baht forecast to reflect recent strength, but we continue to see the currency edge slightly stronger versus the US dollar over the coming year thanks to the recent improvement in the terms of trade and the country's record savings rate.

Table Of Contents

Thailand Country Risk Report Q4 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Major Forecast Changes.................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Growth Recovery Set To Continue................................................................................................................................................8
Thailand's relatively strong Q216 real GDP growth print supports our view of an acceleration of full-year growth to 3.0% in 2016 and
3.5% in 2017.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS....................................................................................................................................................9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Fiscal Policy And Public Debt Outlook.................................................................................................................. 11
Government Capex Surge Should Not Undermine Fiscal Accounts........................................................................................11
The Thai government has ramped up spending this year as part of its ongoing infrastructure investment programme, with capital
spending rising by 24.0% y-o-y for the January-July period.
Structural Fiscal Position........................................................................................................................................ 11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.............................................................................................................................11
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................11
External Trade And Investment Outlook................................................................................................................ 12
Surge In Savings Rate To Support Long-Term Stability............................................................................................................12
The windfall from low oil prices continues to support Thailand's external accounts, with the surge in the trade surplus driving the overall
savings rate to a record high.
Outlook On External Position.................................................................................................................................. 13
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................13
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.........................................................................................................................................13
TABLE: MAIN EXPORT AND IMPORT PARTNERS...............................................................................................................................................14
TABLE: MAIN EXPORTS AND IMPORTS...............................................................................................................................................................14
Monetary Policy........................................................................................................................................................ 15
Rates To Remain On Hold Until 2018..........................................................................................................................................15
We continue to expect the Bank of Thailand (BoT) to maintain its benchmark interest rate at 1.50% over the coming quarters even as
headline CPI rises.
Monetary Policy Framework.................................................................................................................................... 15
TABLE: MONETARY POLICY FORECASTS..........................................................................................................................................................16
Currency Forecast.................................................................................................................................................... 16
THB: Strength Still On The Cards But Risks Growing...............................................................................................................16
We continue to see gradual further Thai baht strength amid low inflation and favourable terms of trade dynamics, which continue to
support the country's saving rate. However, risks are weighted to the downside given the risks posed by the ongoing slowdown in China
and the weakening of the Chinese yuan.
TABLE: CURRENCY FORECAST...........................................................................................................................................................................17
Chapter 2: 10-Year Forecast................................................................................................................... 19
The Thai Economy To 2025..................................................................................................................................... 19
Political Uncertainty The Main Growth Obstacle.......................................................................................................................19
Ongoing political uncertainty, deteriorating demographic trends, and a lack of reform momentum are likely to undermine Thailand's longterm
economic growth trajectory. As such, we forecast real GDP growth to average 3.8% annually over the period from 2016 to 2025,
making it a regional growth laggard over the coming years.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................19
Chapter 3: Political Outlook................................................................................................................... 23
SWOT Analysis......................................................................................................................................................... 23
BMI Political Risk Index........................................................................................................................................... 23
Domestic Politics..................................................................................................................................................... 24
Constitutional Change A Double-Edged Sword.........................................................................................................................24
The passage of Thailand's new constitution is positive for short-term political stability and economic growth and will pave the way for
elections in 2017. However, from a long-term perspective it will likely deepen Thailand's large societal divide and potentially undermine
economic growth.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................24
Long-Term Political Outlook................................................................................................................................... 25
Greater Political Turbulence Ahead, As Royal Succession Looms.........................................................................................25
Thailand will experience greater political turmoil over the coming decade, as the eventual passing of the King will remove a major
arbiter, worsening the schism between the 'Red Shirts' and 'Yellow Shirts'. The most likely scenario is a dysfunctional democracy with
unstable governments, with the military playing a strong role. At worst, rising political violence could push the country towards civil
conflict.
Chapter 4: Operational Risk................................................................................................................... 29
SWOT Analysis......................................................................................................................................................... 29
Operational Risk Index............................................................................................................................................ 29
Operational Risk....................................................................................................................................................... 30
TABLE: OPERATIONAL RISK SCORES.................................................................................................................................................................30
Market Size And Utilities.......................................................................................................................................... 30
TABLE: ASIA - MARKET SIZE AND UTILITIES RISK............................................................................................................................................31
Labour Costs............................................................................................................................................................ 34
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE............................................................................................... 34
Chapter 5: BMI Global Macro Outlook................................................................................................... 37
Global Macro Outlook.............................................................................................................................................. 37
EMs Past The Worst, But Structural Problems Persist.............................................................................................................37
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................37
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................38
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................39
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................41

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