Growth prospects for 2013 looking reasonable
Thailand's economic growth has been exceptionally volatile over the past several years. In 2009, gross domestic product contracted by 2.3 per cent because of the global financial crisis, but then recovered very quickly to grow by 7.8 per cent in 2010. In 2011, growth was merely 0.1 per cent because of the devastating floods, before achieving a better-than-expected 6.4 per cent last year.
The trend for the next few years is most likely a return to normality - which means annual GDP growth of around 4.5-5 per cent.
Much of the growth last year happened in the aftermath of the floods. There was a lot of pent-up demand early in the year, and there was also much private-sector investment as corporates rebuilt their factories or inventories.
However, these flood-related issues are fading, and in order to move forward, there will have to be more sustainable growth drivers.
There are many challenges. Global conditions may be improving, but they remain uncertain.
China has avoided a hard landing and should see a return to solid growth this year. Yet there are big questions elsewhere. The euro zone is likely to remain in recession, with its GDP contracting this year. Japan and the United States are also facing difficult policy decisions, with growth likely to remain below trend.
This is important because global growth is a major determining factor for Thailand's export performance. According to the Customs Department, Thai exports only grew by 3 per cent last year. Prospects for this year are much better with factories mostly recovered from the floods, but probably not good enough for exports to become a major growth driver in 2013.
All this means that domestic demand will still need to make a big contribution to growth, and there are some good signs. Consumer confidence is improving and private consumption in the past few quarters is showing a good trend.
There is also a potential upside from government investment. Though it was delayed (particularly for the water-management projects) last year, state spending appears ready to ramp up. This should also have a positive knock-on benefit for private investment.
Meanwhile, the monetary-policy backdrop is supportive. Interest rates are low and have stimulated bank lending to grow at reasonable levels (loans to small and medium-sized enterprises were up by 14 per cent last year). With the central bank's policy rate remaining below inflation (2.75 per cent compared with 3.23 per cent), continued credit growth appears likely. Indeed, the central bank will need to be vigilant against asset-price bubbles.
Overall, Thailand's growth prospects for 2013 seem reasonable. GDP growth will almost certainly drop compared with the 6.4 per cent seen in 2012, but this is because last year's figure was skewed by a low base due to the floods.
In the medium term, though, the more important issue is whether 4.5-5 per cent growth is enough. Many other developing countries in this region have been consistently growing at above 6 per cent. If Thailand wishes to avoid the middle-income trap, its major priority is to increase the economy's potential growth from its current level, and this can only be done by increasing investment in fundamental factors such as infrastructure and education.
_ Parson Singha is chief markets strategist in the global markets department, HSBC Thailand.