Fast Market Research recommends "Thailand Business Forecast Report Q4 2013" from Business Monitor International, now available
Boston, MA -- (SBWIRE) -- 10/29/2013 -- Thailand is technically in recession with the economy having contracted for two consecutive quarters - seasonally-adjusted real GDP growth came in at a negative 0.3% quarter-on-quarter (q-o-q) in Q213, following a contraction of 1.7% in Q113. Crucially, private consumption and gross fixed capital formation are also beginning to witness some signs of slowing down. We expect cooling external demand to continue to drag on the overall economy and that full-year real GDP growth will come in relatively weak at just 4.0%, compared to the Bloomberg consensus of 4.8%.
In light of the difficulties in withdrawing the rice policy without fuelling widespread unrest and losing support from voters, we see a risk that the government may choose to kick the can further down the road, resulting in a protracted delay in bringing the budget back into balance. Our forecasts for Thailand's budget deficit to narrow only gradually, before eventually balancing out by around 2017, reflect our concerns that the government is likely to face significant delays before getting its finances back in order.
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Our view that China's economic growth will continue to deteriorate as we head into 2014, and that this will weigh on external demand across South East Asia, and in turn, Thailand's export sector, remains a key factor underpinning our cautious outlook on the Thai baht in the medium term. Nonetheless, given Thailand's robust macroeconomic fundamentals - bullish outlook for automobile exports and the country's leading position as a major exporter of rice and other agricultural produce in the region - we continue to see the country running a balanced current account going forward.
Major Forecast Changes
We have revised our currency forecasts to account for the recent collapse of the Thai baht against the US dollar and to reflect our neutral outlook on the current account. We forecast the Thai baht to average THB30.70/US$ and THB31.00/US$ for 2013 and 2014, respectively.
Key Risk To Outlook
Downside Growth Risks From Deteriorating Fiscal Position: In the event of a substantial decline in rice prices over the coming months, we could see the government suffering massive losses as a result of its rice policy. This could weigh on the government's ability to finance large-scale investment projects, resulting in project delays and putting downward pressure on economic growth.
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