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Thailand: Thailand Business Forecast

2011/08/16

Business Forecast

Core View:

Thailand's real GDP growth will moderate in 2011 as the inventory restocking cycle starts to wind down. A robust labour market and rising wages will support private consumption, which we see as the key driver of economic growth this year.

Political uncertainties over the outcome of general elections will continue to undermine investor confidence, resulting in depressed foreign direct investment inflows into Thailand.

The Bank of Thailand (BoT)'s monetary tightening cycle will come to an end in H211 as inflationary pressures begin to moderate on the back of softening food prices.

Major Forecast Changes:

We have revised our policy rate forecast from 2.75% to 3.00% to reflect one more rate hike by the BoT in H111 and for rates to remain on hold through to the end of the year.

We forecast a mild appreciation for the Thai baht on the back of strong current account dynamics. We see the Thai bahTheading towards THB29.50/US $ by end-2011 (compared with our previous forecast of THB31.50/US $).

Key Risks To Outlook:

Downside Growth Risks From Rising Commodity Prices: Should commodity prices continue to trend higher over through 2011, 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.

Upside Long-Term Growth Risks From Political Reconciliation: Political uncertainties have resulted in depressed foreign direct investment in the economy. However, reconciliation efforts and economic reforms to distribute wealth more equally among the population, could eventually help bridge the political divide in Thailand. This would provide a significant boost to investor sentiment and pave the way for a surge in foreign direct investment inflows and robust economic growth.

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