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Thailand: Economic policies still key to recovery,

but near-term political uncertainties deserve close watch


The 81-year-old Thai King, Bhumibol has been in hospital

since September 19. So far, the royal household stated

that the King’s “general condition is good.”1 Given

the general view of the King’s crucial role in

the stability of Thailand’s political environment,

any changes to the current status quo in

the political scene could have implications

on the implementation of government policies.

Therefore, we believe it is important for

investors to focus on the progress of the

economic policies as well.


What to watch:

1) The developments in the health of the King.

Note, however, that a clear succession plan

has been in place, as the government has

already stated that the next monarch will

be Crown Prince Vajiralongkorn.


2) The opposition is scheduled to hold street

protests this coming weekend. The last street

protest by the opposition on September 19

proceeded without any major violence or

disruption to social stability, given the heavy

presence of the police force.


3) The ASEAN and East Asian summit to be

held in Hua Hin next week. We believe

the government will be keen to avoid a repeat

of last April, when protests forced the

abandonment of the Asian summit in Pattaya.



4) The implementation of the fiscal stimulus measures.


5) Progress on the discussion of constitutional amendments.


Back to economic fundamentals. The current

government launched the first fiscal stimulus

program in early-2009, which amounted to 1.3%

of GDP, mainly consisting of near-term stimulus

targeting social welfare spending. A second fiscal

package amounted to around Bt1.4 trillion was

pass in August, which is to be implemented

throughout 2009 to 2012 (see Exhibit 1).

As we highlighted before, the second fiscal

package was more related to the long-term

strategic position of the Thai economy,

and developments in infrastructure, with majority

of the spending on transportation, energy and

tourism infrastructures. Our view has been that

the fragility of the current coalition government

has turned into a motivating factor for the

politicians to push for more fiscal spending

to garner popularity, especially given the

severity of the economic downturn this time

round. Therefore, it is important for investors

to focus on the implementations of these

economic policies, which would be key to support

Thailand’s growth recovery (see ASEAN-4

monetary policy outlook: Protecting the

“hard-won” policy credibility while tightening,

Asia Economics Analyst 09/17, October 5, 2009).


We believe the improvements in the global

industrial cycle should continue to help

support Asia’s exports, which Thailand

will also stand to benefit. We currently

forecast GDP growth to recover from -3.2%

in 2009 to 4.2% in 2010. While we believe

the fiscal stimulus and the external demand

recovery will likely mitigate the downside risks

to growth, we think the private sector

investment cycle will remain subdued,

until the growth recovery is on a firmer

footing in 2H2010.The capacity utilization rate

is currently at around the 57% level, although it

has recovered from around 50% during its trough

in 4Q2008, it is still substantially below the average rate

of 68% before heading into the global economic

downturn in mid-2008. The significant spare capacity

in the manufacturing sector again points to a weak capex

cycle ahead, especially as the recovery in exports remains

slow. Furthermore, Thailand is one of the most vulnerable

to higher oil prices in the region, and the expectation of

oil price increases in the near term is also likely to weigh

on the capex cycle. The Bank of Thailand (BOT) reduced

policy rates by 250 bp between December 2008 and

April 2009 in response to the economic downturn.

We currently expect the BOT to hike rates by 75 bp

starting in late 3Q2010, with the tightening cycle possibly

extending further into 2011. We believe this is to serve

as a pre-emptive signal of potential pipeline inflationary

pressure in 2011, feeding through from commodity price

inflation to core inflation. However, should the negative

political overhang continue to linger, this could weigh

on domestic demand further, and hence postpone

any monetary tightening by the central bank.


ขอขอบคุณ : Goldman Sachs