Bangkok--22 Feb--Fitch Ratings
The almost static performance of the Thai economy in 2011 should not in itself drag heavily on the country's rating, but the government's response remains an important factor in our assessment of the country, Fitch Ratings says.
Targeted reconstruction spending following the floods, by both the government and private sector, could boost full-year GDP in 2012 (for which we currently forecast growth of 4%) and could strengthen the Thai economy's supply potential as well as the sovereign credit profile over the longer-term. Fiscal stimulus could help also offset any weakening in the global economy.
However, the government of Yingluck Shinawatra, elected in July 2011, had already outlined various pro-growth policy measures, including an increase to the minimum wage and spending on infrastructure development, prior to the flooding.
Since then, it has announced that it will increase the 2012 budget deficit for the fiscal year to September 2012 to THB400bn (3.7% of GDP), from THB350bn (3.3% of GDP).
Pre- and post-flood fiscal loosening could narrow the fiscal buffers that the Thai sovereign can deploy against future shocks. As such, we will continue to monitor Thailand's fiscal policy closely.
Figures released Monday showed that the Thai economy shrank 9.0% in the fourth quarter versus a year earlier. This meant full-year GDP grew just 0.1% in 2011. This was a result of the unusually severe flooding in October and November that badly affected Thailand's manufacturing sector.
More broadly, the orderly handover of power following the July 2011 elections was reassuring, but, like fiscal policy, political risk, which was behind the ratings downgrade in 2009 that took Thailand's Long-Term Foreign Currency IDR to 'BBB', remains an important ratings driver and will be monitored closely.