Boston, MA -- (ReleaseWire) -- 02/21/2013 -- Core Views
Domestic demand in Thailand is turning out to be much more resilient than we had initially anticipated. According to the latest data published by the National Economic and Social Development Board (NESDB), gross fixed capital formation (GFCF) growth accelerated from 10.2% year-on-year (y-o-y) in Q212 to 15.5% in Q312. Looking ahead to 2013, we continue to see the risk of a further decline in exports, which is reflected in consistently weak manufacturing data across key export industries. Accordingly, we expect Thailand's real GDP growth to remain subdued at 4.4% in 2013.
The Bank of Thailand (BoT)'s monetary policy committee cut its benchmark policy rate (one-day repurchase rate) by 25 basis points (bps) from 3.00% to 2.75% on October 17 2012, bringing rates in line with our year-end target for 2012. We expect the BoT to keep rates on hold through 2013 as M2 money supply growth, which remains relatively high - at 10.7% y-o-y in August 2012 - should limit the scope for further easing.
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Thailand's fiscal position is poised for further deterioration in the near term. We are forecasting a budget deficit of around 3.2% of GDP in 2013, up slightly from a projected 3.0% this year. We see risks where failure to withdraw welfare subsidies and raise taxes down the road could harm the country's fiscal position and economic stability over the longer term.
Major Forecast Changes
We have revised upward our real GDP growth forecast for 2012 from 4.0% to 4.3% to reflect the better-than-expected print in Q312.
Key Risks To Outlook
Downside Growth Risks From Rising Commodity Prices: Should commodity prices resume an upward trend over the coming months, we could see the central bank adopting a more hawkish stance on monetary policy. Higher interest rates, combined with a stronger Thai baht, would put considerable downside pressure on economic growth.
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