Bangkok--2 Jul--Siam Commercial Bank
EIC maintains its forecast that Thailand's GDP will grow by 3.0% in 2015. The economy slowed during the first half of the year. Household and business incomes were dragged down by falling agricultural product prices, delays in disbursements of the public investment budget and a decline in exports, which fell by as much as 4.2% on a monthly basis during the year so far.
Yet EIC expects to see signs of recovery during the year's second half. The baht's weakening will increase exporters' revenues in baht terms, since export prices are generally quoted in foreign currencies. This will help boost corporate profits and sustain wages. Moreover, household income should benefit from the government's final push to disburse budget before the end of fiscal year in September as well as from the strong recovery of the tourism industry, which expects a record level of 28.8 million international visitors this year. Overall, EIC estimates private consumption to grow by 1.4% in 2015, private investment to expand by 1.5%, and exports to contract by 1.5% in USD terms.
Domestic factors represent major downside risks to economic growth this year. There are two key risks going forward. The severe drought that is forecast to continue through the months ahead is likely to hit the agriculture sector, especially rice farmers who rely heavily on the national irrigation system. Second, the outbreak of MERS might impact the tourism sector, depending on the effectiveness of the government's disease-control measures. Beyond these risks, further delays in disbursement of the public investment budget could hamper business confidence and thus private investment. We anticipate that the government will respond to the drought with measures to help farmers who are directly affected. Also, there is a high chance that the Bank of Thailand will make another policy rate cut to 1.25% to stimulate the economy. As of now, we do not think that Thailand is facing deflationary risks or a liquidity trap.
The global economy will pick up speed in the second half of the year; yet some concerns persist. The U.S. economy continues on its strong path of recovery, whereas the economies of Thailand's other key trading partners such as Japan and the euro zone remain fragile. Volatility in the foreign exchange markets and bond markets will rise due to concern over the increasing risk of a Greek default and the timing of the Fed's policy rate hikes, which will substantially affect emerging market economies. Thailand faces little risk of sudden capital flight, however, because even when U.S. interest rates rise, the economy will be protected by sound fundamentals including high foreign reserves, a record current account surplus and fiscal stability.