Outlook Quarter 4/2015
EIC estimates Thailand’s GDP will grow by 2.2% in 2015. The Thai economy is expected to slow in the second half of the year. Private consumption shows no sign of recovery, as low commodity prices sink farm-household income. The high level of household debt further limits consumer spending. Dim economic prospects and faltering business confidence caused private investment to contract in the second quarter. Exports shrank in the first seven months of 2015 due to slowing external demand and unfavorable structural factors such as the growing obsolescence of many tech products manufactured in Thailand and the relocation of some key factories to other countries. One positive development was the government’s announcement of several new economic stimulus measures in September, which will boost confidence somewhat and increase liquidity in the economy during the rest of 2015 and next year. EIC expects Thailand’s GDP to increase 3.0% in 2016, partly driven by the stimulus package, whose results should soon become apparent. For the 2016 fiscal year that began on October 1, 2015, the government plans for a budget deficit of 390 billion baht, up substantially from 250 billion baht in fiscal 2015. The investment budget too will rise, by 20% YOY. Another positive factor will be depreciation of the baht, which helps exports and the tourism industry. Factors to watch are mainly external, especially direct effects from China’s economic slowdown as well as its indirect effects through Thailand’s trading partners. The Fed’s long-awaited tightening of monetary policy, via rate hikes expected to begin by the end of this year and continue next year, will be gradual but might cause fluctuation in financial markets and outflows of capital from emerging markets. EIC expects that any capital flight from Thailand will be buffered, however, by the nation’s strong economic fundamentals, as evident in high foreign-exchange reserves, the low ratio of external debt, low inflation and a large trade surplus. This allows the Bank of Thailand to continue its accommodative monetary stance, with the policy rate remaining at 1.5% in 2016.
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Global Economy of 2015 and 2016
EIC estimates Thailand’s GDP will grow by 2.2% in 2015. The Thai economy is expected to slow in the second half of the year. Private consumption shows no sign of recovery, as low commodity prices sink farm-household income. The high level of household debt further limits consumer spending. Dim economic prospects and faltering business confidence caused private investment to contract in the second quarter. Exports shrank in the first seven months of 2015 due to slowing external demand and unfavorable structural factors such as the growing obsolescence of many tech products manufactured in Thailand and the relocation of some key factories to other countries. One positive development was the government’s announcement of several new economic stimulus measures in September, which will boost confidence somewhat and increase liquidity in the economy during the rest of 2015 and next year. EIC expects Thailand’s GDP to increase 3.0% in 2016, partly driven by the stimulus package, whose results should soon become apparent. For the 2016 fiscal year that began on October 1, 2015, the government plans for a budget deficit of 390 billion baht, up substantially from 250 billion baht in fiscal 2015. The investment budget too will rise, by 20% YOY. Another positive factor will be depreciation of the baht, which helps exports and the tourism industry. Factors to watch are mainly external, especially direct effects from China’s economic slowdown as well as its indirect effects through Thailand’s trading partners. The Fed’s long-awaited tightening of monetary policy, via rate hikes expected to begin by the end of this year and continue next year, will be gradual but might cause fluctuation in financial markets and outflows of capital from emerging markets. EIC expects that any capital flight from Thailand will be buffered, however, by the nation’s strong economic fundamentals, as evident in high foreign-exchange reserves, the low ratio of external debt, low inflation and a large trade surplus. This allows the Bank of Thailand to continue its accommodative monetary stance, with the policy rate remaining at 1.5% in 2016.
Bull - Bear: Oil Prices
EIC’s view: BEAR
Crude oil prices in the fourth quarter of 2015 will remain low after excess supply concerns pushed down prices in the third quarter. Given China’s growth slowdown, oil prices will face steady downward pressures in short- to medium-term. However, EIC expects non-OPEC producers, led by the US and Russia, to lower their production which can lower excess supply and shore up prices to a more stable level. The imbalance of demand and supply for oil still persists as OPEC shows no intention to lower production. Moreover, the end of sanctions on Iran will allow more oil exports in the global market. Also, supply is likely to increase from other producers, especially the non-OPEC such as Canada. This will escalate concerns over excess supply and put downward pressures on oil prices.
In focus: Can Malaysia avoid a balance-of-payments crisis?
Emerging markets all around the world currently face economic risks from capital outflows triggered by China’s ongoing slowdown and the likelihood of a rate hike by the U.S. Federal Reserve. Among countries in Asia, Malaysia is the one most vulnerable to the threat posed by capital flight due to its weak economic fundamentals. Its foreign-exchange reserves
are falling, increasing the risk a balance-of-payments crisis if its central bank continues to intervene in currency markets to support the weakening ringgit. If such a crisis were to occur in Malaysia, Thailand too would be affected due to the close economic and financial links between the two countries. In a meantime, other emerging markets facing capital flight risks
are South Africa and Turkey.
In focus: In-depth analysis of Thai private investment reveals mixed outlook, need to optimize government policy
Discussions of Thailand’s lackluster economic performance sometimes overlook one crucially important fact: private investment has stalled in recent years. Excluding the onetime surge in investment to replace buildings and equipment
damaged in the 2011 floods, capital spending has declined since April 2009.
The search for remedies to the private investment slump should start by examining Thailand’s broad industry groups and specific sectors to see which are most able to increase investment. And how and when could they do it?