Bangkok--25 Oct--Aziam Burson-Marsteller
RBS today said that strong domestic demand is going to cushion Thailand in the face of global headwinds.
With an export-to-GDP ratio of 70% - the highest in the region after Singapore, Hong Kong and Malaysia - Thailand is particularly exposed to the weak global environment. This was on display in 2008, when the Thai economy was one of the hardest hit by the collapse in global trade.
However, domestic demand is going to offset much of the global weakness for several more quarters. For starters, investment including foreign investment remains exceptionally robust. Part of this is due to the flood recovery. Another more sustainable portion is due to pent-up investment demand following an extended period of political uncertainty.
Consumption has been buoyant due to tax incentives and will receive another boost through the rise in minimum wages in early 2013. With hindsight, the delay in public investment is fortunate as public spending will hit the economy just when the flood reconstruction is waning. RBS maintains its full year growth forecast of 5.7% for 2012 and 5% for 2013.
Given the continuing strength of the recovery, yesterday’s rate cut came as a surprise. It is also in contrast to the policy stance of countries facing similar circumstances. For example, Malaysia and Singapore, both very open economies, refrained from monetary easing.
We expect real policy rates to remain moderately negative through 2013 with our inflation forecast of 3.2%. Accordingly, we see little scope for further cuts until mid-2013 when domestic demand may loose steam.
In light of Thailand’s resilience — which it shares with its ASEAN neighbours — RBS still expects the Thai baht (THB) to continue to modestly appreciate to 30.00 against the dollar by end of 2012.
In the medium term, public investment will have to rise in order for Thailand to emulate the economic success of the Asian Tigers.
While notable by global standards, Thailand’s growth performance is less impressive when measured against its Asian peers. A key reason is Thailand’s lower rate of investment.
With public debt at 44% of GDP, higher government revenue needs to be part of the solution. In fact, Thailand’s revenue-to-GDP ratio is well below the average of emerging markets. Greater public investment should serve as a catalyst for more private investment and help raise Thailand’s potential growth.
For further information contact:
Patricia Choo
Head of Media Relations, South Asia
RBS Markets & International Banking
Telephone: +65 6518 8497
Email:
[email protected]