Bangkok--25 Jul--SCB
SCB Economic Intelligence Center (EIC) expects the Thai economy to expand 4.0% this year. This is lower than the previous estimate of 5.1% mainly due to 1) slower private spending 2) delay in proposed government investment and 3) lackluster exports in the first half of this year. Private consumption slows in both components of durable and non-durable goods, partly as a result of increasing household debt burden; while private investment, especially the machinery imports, decelerates after the surge on the back of reconstruction in 2012. In addition, the Thai economy will be further affected by the legality delay on the execution of water management projects. With regard to trade, Thai exports expanded only 1.9%yoy in the first five months of this year, tumbled by shrinking exports to China. However, EIC expects Thai exports to pick up later this year as major advanced economies, including the US and Japan, continue their recovery paths. Despite these, exports are expected to grow only 3.7% in 2013.
Acceleration of household debt caused slowdown in private consumption. Household debt has increased from 63% of GDP in 2010 to 80% in 2012. Such quickening of debt burden results in households becoming more cautious in their spending and commercial banks enforcing stricter lending policies. These are evident in a slower expansion of loans for consumption purposes, such as personal loans and credit cards, in the first quarter of 2013. A higher debt burden also constrains households’ ability to borrow further. Furthermore, declines in prices of agricultural products such as rubber and sugar have kept farm households’ income from rising and in turn hampered their consumption.
EIC expects the Thai Baht to be around 30-31 Baht per US dollar during the rest of 2013. The Baht and other regional currencies should move together in the same direction, driven by the common factor which is the possibility of QE tapering by the end of this year. This common factor will be causing capital outflows from emerging market economies. EIC does not expect that this episode of capital outflows will drive Thailand into a balance of payment crisis. Unlike 1997, Thailand currently has ample foreign exchange reserves to meet its obligations: 3 times the amount of short-term external debt, and 130% of total external debt. With this ample cushion, foreign investors should have the confidence to remain investing in Baht denominated assets. As a result, it is unlikely that Thailand will experience a destabilizing Baht depreciation. For this reason, EIC expects that Thailand still has the room to keep monetary policy accommodative, unlike some Asian countries such as India and Indonesia, who have to raise interest rates to support their currencies.