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Political situation weighs on Thailand's growth: Moody's

Thailand's credit outlook is stable along with others in Asia Pacific, said Moody's Invstors Service, but political developments will be key.

"While the recent coup d’etat has provided some relative stability, growth now is significantly weaker than it was in 2006 when the military last took administrative matters into its own hands," the rating agency said.

Moody’s Asia-Pacific sovereign analysts expressed these views at conferences in Hong Kong and Singapore entitled "Credit Differentiation matters in a Basel III World." Moody’s assigns "Baa1" rating for Thailand.

The rating agency forecasts the 2.7 per cent growth rate for Thailand this year, before slighlty picking up to 3.2 per cent next year. At this rate, the 2014 growth forecast is the lowest in 10 economies (Ex-Japan) covered.

Growth forecasts

Country/ 2014/ 2015

China 7.0 7.0

India 5.0 5.6

Indonesia 5.4 5.8

Japan 1.0 1.5

Korea 3.8 3.8

Malaysia 5.3 5.0

Philippines 6.0 6.3

Singapore 4.0 4.4

Taiwan 3.3 3.5

Thailand 2.7 3.2

Vietnam 5.5 5.7

Source: Moody’s Investors Service

For the entire Asia Pacific, Moody’s said that the credit outlook is stable, although the slowdown in China’s expansion, rising interest rates, and lackluster growth in advanced

countries are constraining regional economies.

Of 22 sovereigns in the Asia-Pacific region, most have stable outlooks, indicating its broad expectation of steady credit conditions over the next 12 to 18 months. Malaysia (A3) and the Philippines (Baa3) are on positive outlook, while Mongolia (B2) is on negative outlook.

A focal point for investors has been the extent to which activity in China (Aa3 stable) will cool as authorities wean the region’s largest economy off its dependence on public-backed and credit-fueled investment for growth. Moody’s takes the view that policymakers will be able to achieve

a soft landing, with GDP expanding between 6.5 per cent and 7.5 per cent this year and next. But in the case of a steeper downturn in demand, large commodity exporters such as Australia and Indonesia would be most exposed. In contrast, among Asean countries, the Philippines could be the best insulated against a further slowing in Chinese growth given its reliance on domestic demand, services exports, and overseas workers’ remittances.

Meanwhile, signs that Japan’s (Aa3 stable) economy is on the road back to healthier rates of growth also bode well for the region as a whole.

In a number of countries in Asia Pacific, interest rates have started to rise from extraordinarily low levels. At the same time, trends in global liquidity conditions will be the key driver of capital flows, especially as the US Federal Reserve navigates its exit strategy. Consequently, tighter funding conditions may have differing impacts on sovereign creditworthiness depending on countries’ respective reliance on external financing.


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