Flash Notes

Manop Udomkerdmongkol [email protected] Global Economics & Markets Research Email: [email protected] URL: www.uob.com.sg/research

Flash Notes

Monday, 20 February 2017

Thailand: Growth Slows In 4Q16 But Outlook Remains Upbeat ƒƒ

4Q16 GDP growth disappointed, slowing to 3.0% y/y from 3.2% in 3Q16, taking 2016 GDP growth to 3.2% from 2.9% in 2015.

ƒƒ

For 2017, we maintain our GDP growth forecast of 3.3% driven by higher public infrastructure spending, tourism and improving domestic demand conditions.

ƒƒ

We still expect the BoT to remain on hold and broad THB depreciation against USD this year to support the ongoing economic recovery.

Slower Growth To End-2016

Overall economic activity in 4Q16 continued to grow with public expenditure as a key driver of economic growth although the 4Q16 GDP growth disappointed, slowing to 3.0% y/y from 3.2% in 3Q16. After seasonal adjustment, the Thai economy expanded by 0.4% in 4Q16. In line with our expectations, GDP growth for 2016 improved to 3.2% from 2.9% in 2015. Merchandise exports presented a more robust sign of recovery, consistent with production of export-oriented industries. Nevertheless, service receipts slowed down as a result of a fall in tourism revenues after the government’s regulation on illegal tour operators. Private consumption temporarily decelerated but was however partly supported by the shopping and domestic travel tax deductions at the end of 2016. Private investment contracted at a slower pace but remained concentrated in alternative energy, service and transportation and some export-related industries. Meanwhile, the current account continued to record a surplus mainly due to improved value of merchandise exports. Thailand’s Real Economic Growth Percent per year

2015

2016

1Q16

2Q16

3Q16

4Q16 2.5

Private Consumption Expenditure

2.2

3.1

2.8

4.0

3.0

Government Consumption Expenditure

3.0

1.6

9.1

2.4

-5.2

1.5

Gross Fixed Capital Formation

4.4

2.8

5.0

3.5

1.0

1.8

Exports of Goods and Services

0.7

2.1

4.8

1.0

1.4

1.1

Imports of Goods and Services

0.0

-1.4

-5.2

-2.5

-1.1

3.4

GDP

2.9

3.2

3.1

3.6

3.2

3.0

Source: NESDB and UOB Global Economics & Markets Research

Positive Economic Outlook

Our growth forecast for 2017 remains unchanged at 3.3% as major infrastructure investment projects such as Eastern Economic Corridor development project, motorways, and high-speed rail networks are expected to have significant roles in driving the Thai economy this year. Tourism is expected to continue an expansion trend, while private investment is expected to pick up as the infrastructure projects get under way. However, exports are projected to improve at a gradual pace due to uncertainties in the direction of US trade policies and the slow global economic recovery.

Prudent BoT

We reiterate our forecast that the BoT will keep the policy rate unchanged at 1.50% this year as current monetary conditions remain accommodative and conducive to the economic recovery with ample liquidity in the financial system and low interest rates. In addition, headline inflation is expected to rise at a slow pace, whilst demand-pull inflationary pressure remains low and public’s medium-term inflation expectations remain close to the inflation target.

Flash Notes Monday, 20 February 2017

1 Page

Lowering USD/THB Projection

Increased capital flows into Thailand’s equity and bond markets have been apparent mainly due to the relatively low non-resident participation in the markets and improved sentiment resulting from the announcement of additional stimulus packages by the government. As a result, the baht has strengthened against the US dollar since the beginning of 2017. Nevertheless, we see temporary weakness in the US dollar as the BoT mentioned its concerns about the continued strength of the baht in the MPC statement. Fed rate hikes and monetary policy divergences will also affect USD/THB exchange rate going forward. We forecasted three 25bps rate hikes in 2017 (in the Jun, Sep and Dec FOMC of 2017) from two previously and a higher terminal Fed Funds Target rate (3.5% by end-2019 instead of 3%). Looking ahead, we maintain our forecast of higher USD/THB trajectory even as we are lowering our call for the levels. We have revised our call for USD/THB to 35.4 for end-1Q17 from earlier 36.3. Thailand’s Real Economic Growth As of 20 Feb

1Q17F

2Q17F

3Q17F

4Q17F

1-Day Repo Rate (%)

1.50

1.50

1.50

1.50

1.50

USD/THB

35.0

35.4

35.8

36.2

36.5

Indicator

Source: UOB Global Economics & Markets Research

Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that the reader is able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise. Singapore Company Reg No. 193500026Z