Thailand bounces back with strong growth
Published: 30 September 2010
Good infrastructure, cost competitiveness attracts foreign investors
Thailand had a rocky first half as political unrest dented confidence and caused some investor jitters. However, the country was quick to recover and strong exports and domestic consumption put the economy back on track for strong growth.
Here, Wellian Wiranto, Asian Economist at HBSC Global Markets in Singapore, comments on the outlook for the country.
How has Thailand recovered from the global financial crisis and what is your growth forecast for 2010-11?
Thailand has rebounded well from the crisis, with GDP in FY Q1 10 registering a spectacular 12 per cent year-on-year growth. In Q2, domestic political dark clouds hung over the horizon, but the economy was surprisingly - and thankfully - rather resilient to the conflicts on the ground. Exports continued to power on, and domestic consumption proved to be remarkably strong. It is a good thing that the economy has developed at least some form of immunity to the bouts of political volatility. Nevertheless, the second half of 2010 looks less robust given the global concerns. Still, both exports and consumption have held up well so far, and we are projecting 2010 growth to exceed 7.5 per cent, and over 5 per cent for 2011.
Fiscal health is supported by strong economic growth, which has resulted in higher-than-expected tax revenue. For the first 11 months .. government revenue exceeded its target by more than 25 per cent.
What is your view on government tax rates and collection levels?
The overall fiscal situation of Thailand continues to be robust, which has enabled the government to continue its stimulus plans, which involve both infrastructure projects as well as direct aid to the less well-off segments of the population. The fiscal health is supported by strong economic growth, which has resulted in higher-than-expected tax revenue for the government. For the first 11 months of the current fiscal year (October 2009- September 2010), the government's revenue exceeded its target by more than 25 per cent.
Are inflationary pressures growing?
By and large, inflation remains on a tame upward trend currently, with core inflation staying well within the central bank's target range. Still, with robust economic growth, we are inadvertently going to see capacity constraints coming in and potentially contributing to price pressures down the road. On that front, it is good to see that the central bank has acted prudently by raising its policy rate from the record-low level – which would help to limit any potential for higher prices.
Consumer confidence readings rebounded sharply …Tellingly, auto sales have remained at record levels in recent months, indicating that consumption will continue to be one of the engines that keep the Thai economy growing apace.
How do you expect interest rates to move in the near term and what impact will this have?
The central bank has embarked on its rates normalisation mode, raising its policy rate twice to 1.75 per cent currently. We expect the Bank of Thailand to continue the recent trend, and increase rates once more when they meet next in October, before pausing at 2 per cent. This level represents a good balance between curbing any potential for elevated inflation down the road due to current robust growth, and trying not to crimp economic growth at the same time.
What is the mood at street/consumer/branch level?
Consumers remain in a supportive mood. Consumer confidence readings rebounded sharply after dropping in April and May due to the political turmoil. Shoppers are still out in force across Thailand. Tellingly, auto sales have remained at record levels in recent months, indicating that consumption will continue to be one of the engines that keep the Thai economy growing apace.
What is Thailand’s main attraction for foreign investors and what is the outlook?
Thailand had a rocky first half as political unrest dented confidence and caused some investor jitters. However, the country was quick to recover and strong exports and domestic consumption put the economy back on track for strong growth.
Wellian Wiranto
Wellian Wiranto joined HSBC in January 2010, primarily covering the economies of Indonesia, Thailand and Malaysia. Before joining HSBC, he covered the Indonesia and Malaysia economies at the Monetary Authority of Singapore (Singapore's central bank).
Mr Wiranto has also worked at the International Monetary Fund in Washington DC and a brokerage house in Indonesia. He holds an MSc in Applied Economics from Cornell University and a BA in Economics from the University of Chicago.
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