20131002-大华银行-Quarterly_Global_Outlook_4Q2013_27页_383kb

Thailand Economic Summary (2011–2014)

Core Content

Thailand's economic performance in 2013 and early 2014 was marked by a slowdown in growth, a technical recession, and evolving monetary and fiscal policies. The country faced challenges from weak private consumption, ongoing natural disasters, and external factors like the US QE tapering. Despite these headwinds, the government implemented measures to support economic activity and manage inflation.

GDP Growth Projections

• 2Q 2013 GDP Growth: 2.8% y/y (-0.35% q/q SA), below expectations of 3.3%.
• Technical Recession: Confirmed as both 1Q and 2Q showed contraction on a q/q SA basis.
• Main Drag: Private consumption, which accounts for 54% of GDP, contracted by 1.9% q/q SA in 2Q.
• Industry Weakness: Manufacturing, agriculture, and wholesale & retail trade all experienced contraction in 2Q.
• Full Year Forecast: Revised from 4.7% to 3.8% for 2013, with a revised 3.5% y/y for the second half due to base effects.
• 2014 Outlook: Expected to grow at 4.4% y/y, supported by global recovery and domestic infrastructure investments.

Inflation Trends

• Headline CPI: Declined from a recent high of 3.6% y/y in Dec 2012 to 1.6% y/y in August 2013.
• Core Inflation: Also declined, from 2.75% y/y in Jan 2012 to 0.8% y/y in August 2013, well within the BoT's target range of 0.5% to 3.0%.
• Inflation Forecast: Revised to 2.4% for 2013 and 3.6% for 2014.
• Risks: Ongoing floods and potential labor cost increases may exert upward pressure on inflation in 2014.

Monetary Policy

• Interest Rates: The Bank of Thailand (BoT) cut rates by 25bps in May 2013 to curb capital inflows and stabilize the currency.
• Current Rate: 2.5% is considered the floor, and BoT is expected to maintain this rate for now.
• Future Outlook: Rates may rise in 2014 as inflation increases and the THB weakens due to the eventual tapering of US QE.

Currency Trends

• THB Appreciation: Reached 28.7/USD in April 2013 due to strong capital inflows and optimism about growth.
• THB Depreciation: Weak growth and US QE tapering discussions led to a weakening of the THB, reaching 32.29/USD in September 2013.
• Forecast: THB is expected to weaken further to 32.50/USD by end 2013 and to 33.80/USD by Q1 2014.

Household Debt and Financial Stability

• Household Debt: Increased to 80% of nominal GDP, up from 45% in 2003.
• Debt-to-Income Ratio: Rose to 0.34 in 2013, compared to 0.30 in 2011.
• Credit to Private Sector: Reached 148% of GDP in 2012, close to the 166% level before the 1997 Asian Financial Crisis (AFC).
• Non-Performing Loans (NPLs): Remained stable at 2.1% for 2Q 2013, indicating financial stability.
• Housing Prices and Loans: Remained stable, suggesting that credit growth is not fueling asset price inflation.
• Excluding Business-Related Loans: Household debt to GDP ratio would drop to 64%.
• Foreign Reserves: Increased to US$171 billion in 2012, compared to US$28 billion in 1998.
• Government Debt: Remained low at 0.44 of GDP, with the new infrastructure bill expected to keep public debt below 50% of GDP.

Key Risks and Outlook

• Floods: Affected 30 provinces, posing risks to growth and potentially increasing inflation.
• QE Tapering: Expected to eventually occur, leading to THB depreciation and higher interest rates.
• Consumer Confidence: Supported by the infrastructure bill and long-term economic plans.
• Monetary Policy: BoT is likely to maintain current rates and adopt a wait-and-see approach, with rate hikes anticipated in 2014.

Conclusion

Thailand's economy entered a technical recession in 2013 due to weak private consumption and external shocks, but the government has taken steps to stabilize growth and inflation. The country's financial position remains stronger than during the AFC, with low public debt and substantial foreign reserves. As global conditions improve and domestic policies take effect, Thailand is expected to recover in 2014, supported by a more favorable inflation environment and potential monetary tightening.