Bangkok--25 Apr--Aziam Burson-Marsteller
In an economic briefing today, The Royal Bank of Scotland’s (RBS) chief Asia economist, Sanjay Mathur, said he remains positive on Thailand’s growth and expects a solid growth rate of 5% in 2013. This is due to the combination of an expansionary fiscal policy, rising foreign direct investments (FDI) and favourable monetary conditions.
“Thailand has one of the most expansionary fiscal policies in the region, with an emphasis on off-budget spending,” commented Mr. Sanjay Mathur, Managing Director and Head of Economic Research, Asia ex-Japan. “When coupled with rising FDI, the government’s fiscal stance is generally appropriate in the current global environment and has helped drive growth in Thailand.”
Thailand’s main government spending programs include post-flooding reconstruction, increasing the minimum wage, reduction in corporate tax rates, rice intervention programme and the now completed first-time car buyer incentives. Increased investment spending by the government, especially in road and rail infrastructure, will continue to support domestic demand. With declining commodity prices, RBS also expects the risk of inflation to remain contained.
However, bank lending and household credit have grown at an aggressive pace, partly reflecting both consumer demand for loans as well as post-flooding reconstruction. Bank lending has grown by 15% year-on-year (YoY) and the loan to deposit ratio (LDR) has grown by 22% YoY. Growth in total domestic loans, excluding those of Thai bank branches overseas, reached around 15.4% by the end of 2012, a level that was seen before the floods in Q4 2011. Personal consumption growth has tripled its momentum to 21.6% in Q4 2012 from 7.6% in Q3 2009.
Mathur highlighted that curbing consumer demand will probably require tighter macro prudential standards, regardless of whether rates are pushed lower. Accordingly, it would be logical to assume greater intervention in the FX markets in the coming months. However, whether the intervention can be fully sterilised, is debatable.
Mathur added, “Overall, interest rates are likely to stay stable if intervention is fully sterilised or decline if partially sterilised. This implies that the risk reward of being long THB bonds is favourable. Also, the issuance of longer-dated bonds is officially forecast to decline through the course of the year.”
What next for the THB?
RBS estimates that over the past three months, the real effective exchange rate has appreciated almost 3%. At the same time, the surge in exports that followed the post-flooding reconstruction period has come to an end. With the slowdown in exports in February, there has been a clamour for a more competitive exchange rate across industries, even in tourism.
On the recent outperformance of the Thai Baht (THB), RBS believes that policymakers will need to start resisting any excessive and fast appreciation of the THB, especially against the backdrop of faltering exports.
“The upshot to this resistance should be an improved outlook for local currency bonds. A modest rate hike is possible, but flows will contain the rise in bond yields. The THB is looking fairly valued, not taking into consideration the rise in real wages, and we expect its appreciation to be more modest from hereon, at a level that is consistent with fundamentals. We remain positive on the currency and expect it to strengthen to 28.25 by end-2013,” said Mathur.
For further information contact:
Patricia Choo
Head of Media Relations, South Asia
RBS Markets & International Banking
Telephone: +65 6518 8497
Email:
[email protected]