Bangkok--2 Apr--Siam Commercial Bank
EIC's latest forecast points to continued expansion of the Thai economy at 4.0% YOY in 2018, buoyed by improving external demand and recovering investment. The tourism and export sectors will continue to be the main growth drivers of the economy this year thanks to strong fundamentals of the global economy. In 2018, exports of goods and the number of tourists are projected to expand at 5.0% YOY and 8.0% YOY, respectively. Sustained growth in exports has led to an increase in capacity utilization, lending support to private investment going forward. Moreover, private investment has an additional stimulus from the government's infrastructure investment, particularly following the greater clarity in the Eastern Economic Corridor' (EEC) project as the Thai parliament passed the EEC law. This project has a high potential in attracting both domestic and foreign investment. In addition, the concern over shortage of migrant labor has subsided, after the government postponed enforcement of the new regulation on undocumented migrant workers and eased the regulation's rules of punishment.
Domestic consumer spending is projected to continue expanding, but remains reliant on the purchasing power of certain groups. In 2018, growth in domestic consumption will sustain its momentum from the previous year due mainly to consumption of durable goods among high-income earners, reflected by the high rates of growth in automobiles' sales in the early 2018. Nevertheless, spending from low-income households still faces headwinds due to high household debt level and slow recovery in employment and household income, reflected by increasing unemployment rate and declining overtime employment. This shows that the labor market has not received full benefits from the ongoing economic expansion. In addition, farm income has been negatively impacted by falling prices of some agricultural products, thus leading to subdued expansion in consumption of non-durable goods. However, consumption of low-income workers will receive some support from the government's state welfare project this year.
Overall, downside risks to the Thai economy are low, but businesses in certain sectors should exercise greater caution. First, the US's protectionist trade policies potentially have direct impact on some exports sectors, namely solar panels, washing machines, steel and aluminum. These sectors constitute a low proportion of the total values of Thai exports, however, this source of risk might be more elevated in case the US's major trading partners retaliate and turn into trade war scenario. Second, strength and volatility of the Thai baht will have repercussion on exporters' baht revenue as well as competitiveness of Thai agricultural products. Lastly, monetary policy normalization of major central banks, particularly the Federal Reserve, might trigger global financial markets' volatility and tighten global liquidity, possibly resulting in adjustment in asset prices and negative impact on growth of some economies. For Thailand, EIC assesses that the economy's external financial stability remains intact. Therefore, volatility in the global financial markets should have limited impact on Thai economic growth this year.
By: Yunyong Thaicharoen, Ph.D.
Chief Economist and FEVP
Siam Commercial Bank Public Company Limited
EIC Online: www.scbeic.com
LINE: @SCBEIC