Bangkok--29 Nov--HSCB
After the flood: Economic prospects for Thailand’s recovery
by Frederic Neumann, PhD
Managing Director, Co-head of Asian Economic Research
Key points:
? Natural disasters (e.g. in floods in Australia, tsunami in Japan) have a big negative impact on economic growth, but is usually accompanied by a quick rebound.
? Thailand should see a similar trend. Key indicators such as industrial production and exports should turn sharply negative, but we expect output to bounce back in early 2012.
? Tourism has historically shown resilience to adverse shocks, and should help support the recovery this time around as well
? An important component of growth would be government spending. A 1% increase in government expenditure leads to a boost of 0.2% in real GDP on quarter later. There is scope for the Thai government to increase spending, as current debt levels are not too high compared to other countries.
? Monetary policy can also play a part in supporting the recovery. We expect the Bank of Thailand to cut interest rates by 25bps in 4Q 2011. Inflation could rise in the short term, but should soon level off.
? The global picture remains challenging. The US economy is having a disappointing recovery. Meanwhile there are still a lot of risks in Europe.
? We expect Thai GDP growth of 1.7% in 2011, but improving to 4.5% in 2012. Growth is likely to be very weak in 4Q 2011 (-5.0% q/q), but should quickly recover in 1Q 2012.