Synchronisation to bring a more balanced growth

Economy October 12, 2018 01:00


AFTER BEING in the shadow of external sector dependence, domestic demand is now coming to fore. This shifting of gears is being led by consumption, which should enjoy more broad-based improvement.

At the same time, the crowding-in effect of government infrastructure projects should continue to buoy private investment.

External contribution is projected to moderate but remain healthy overall. Tourism sector should remain a key economic driver thanks to steady climb in Chinese tourists. Export of goods, however, is expected to decelerate amid softening of the global economy. All considered, we estimate +4.2 per cent year on year growth for the Thai economy next year, edging down from the +4.4 per cent for fiscal year 2018. 

More broad-based consumption and solid private investment

Private consumption has recovered this year thanks to the automobile sector which showed solid year on year expansion. For FY2019, we expect automobile contribution to fade as domestic car sales normalise. However, consumption of non-durable goods, which are more reflective of grass roots economy, is expected to rise and offset weakness in durable goods consumption. 

This is based on pre-election stimulus packages coupled with gradual improvement in farm income.

At the same time, the private sector is expected to get a boost from successful conclusion of new elections. Moreover, scaling up of infrastructure-based public investment should lift investor confidence and spur private investment.

External sector to stay robust, albeit at slightly lower growth rates

After being the key GDP driver over the past few years, merchandise exports is expected to moderate as global economic growth slows next year. Furthermore, many emerging markets, particularly in Asean, which has been widening its share of Thai exports, have recently suffered rapid currency depreciation. This weakening could curtail future demand for Thai exports.

We remain upbeat on tourism growth, which we forecast to remain strong and help the external sector maintain its robust performance. Chinese tourists will remain the key driver, backed by the country’s vast room for growth in number of passport holders and Thailand’s position as the top destination for Chinese tourists. 

Our view is further supported by a Nielsen survey from 2017 which indicated that uniqueness of tourist attractions – the key strength of Thai tourism - is the priority for Chinese tourists.

Expect MPC to hike rate once in FY2019F amid low headline inflation

Headline inflation should stay subdued and close to the lower bound of the inflation target next year. Backed by improvement in domestic demand, consumption is expected to gradually increase and become more broad-based. This in mind, we project headline and core inflation to rise only modestly to +1.3 per cent YoY and +0.9 per cent YoY, respectively.

Current account should remain healthy on steady rise in inbound tourists but might scale down overall due to decline in merchandise trade surplus. Thanks to its more robust external stability compared to peers, we expect the Thai baht to slightly depreciate to an average of Bt33 per USD.

Against a backdrop of solid domestic and external stability, we expect the MPC to hike rates once next year to create policy space to cope with future risk.

Risks to outlook are tilted to the downside

We flag some key downside risks to our relatively robust growth projections. These include:

Political stability

After receiving royal endorsement, the organic laws on the selection of senators and election of MPs are now slated to be promulgated in Sept and Dec, respectively. Thus, election should take place in Jan-May 2019. However, we are still cautious about the political situation as there remain significant uncertainties. One is possibility of further election delay, which could lead to re-emergence of political turmoil. Another issue is that even with an on-schedule election, there is potential for the new electoral system to produce a weak coalition government.

Escalating trade protectionism

Regarding externals, escalation of trade protectionism is the key risk for our outlook. Although direct impact on Thailand from the trade spat is expected to be small, rising conflict can undermine the global outlook and impact demand for both exports of goods and services, subsequently dimming economic growth prospects.

Contributed by Mana Nimitvanich, Head Of Economics at Tisco Economic Strategy Unit. He can be reached via