Thailand Business Forecast Report Q3 2011

Core View:
Thailand’s real GDP growth will moderate in 2011 as the inventory restocking cycle starts to wind down. A robust labour market and rising wages will support private consumption, which we see as the key driver of economic growth this year.
Political uncertainties over the outcome of general elections will continue to undermine investor confidence, resulting in depressed foreign direct investment inflows into Thailand.
The Bank of Thailand (BoT)’s monetary tightening cycle will come to an end in H211 as inflationary pressures begin to moderate on the back of softening food prices.
Major Forecast Changes:
We have revised our policy rate forecast from 2.75% to 3.00% to reflect one more rate hike by the BoT in H111 and for rates to remain on hold through to the end of the year.
We forecast a mild appreciation for the Thai baht on the back of strong current account dynamics. We see the Thai bahTheading towards THB29.50/US $ by end-2011 (compared with our previous forecast of THB31.50/US $).
Key Risks To Outlook:
Downside Growth Risks From Rising Commodity Prices: Should commodity prices continue to trend higher over through 2011, we could see the central bank adopting a more hawkish stance on monetary policy. Higher interest rates combined with a stronger Thai baht would put considerable downside pressure on economic growth.
Upside Long-Term Growth Risks From Political Reconciliation: Political uncertainties have resulted in depressed foreign direct investment in the economy. However, reconciliation efforts and economic reforms to distribute wealth more equally among the population, could eventually help bridge the political divide in Thailand. This would provide a significant boost to investor sentiment and pave the way for a surge in foreign direct investment inflows and robust economic growth.
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Executive Summary 5
Core View:5
Major Forecast Changes: 5
Key Risks To Outlook: 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Democrat Coalition Victory In Sight
Thailand is expected to hold general elections by July and we believe that the odds favour a Democrat coalition victory
Table: Political Ov erview 8
Long-Term Political Outlook 9
Three Scenarios For The Next Decade
Thailand’s political situation will remain highly volatile and it is difficult to envision political stability over the next few years
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Cautiously Optimistic For 2011
Thailand’s real GDP growth will moderate to 36% in 2011, from 78% in 2010, as high base effects kick in and the
inventory restocking cycle winds down
Table: ECONO MIC ACTI VIT Y 14
Monetary Policy 16
BoT Rate Hikes Coming To An End
The Bank of Thailand is expected to hike interest rates by 25 basis points in the upcoming policy meeting on April 20,
bringing the policy rate from 250% to 275%
Table: MONETAR Y PO LIC Y 16
Exchange Rate Policy 18
THB: Back On A Steady Uptrend
Thailand’s strong current account position and continued monetary normalisation by the central bank will support a
steady appreciation of the T hai baht over the coming months
Table: EXCHAN GE RATE 18
Key Sector Outlook 19
Foreign Partnerships To Be Key Determinant Of Success For Thai Banks19
Chapter 3: 10-Year Forecast 21
The Thai Economy To 2020 21
Politics Hold Key To Long-Term Growth
The Thai economy should expand fairly robustly until 2020 but continued political uncertainty means that its full
growth potential is unlikely to be reached
Table: THAI LAN D: LON G-TER M MACROECONO MIC FORECASTS , 2013-2020 21
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Investment Climate 26
Corporate Tax Cut: Politically Attractive, Economically Sound
The Thai government’s pledge to potentially slash the corporate income tax rate from 300% to 180% if it retains power
in the upcoming general election, will help attract political support for the Democrat coalition
Business Environment Outlook 27
Table: BMI Business And Operation Risk Ratings 27
Institutions 28
Table: BMI Legal Framework Rating 28
Infrastructure 30
Table: Labour Force Quality 31
Market Orientation 32
Table: ASIA , ANNUA L FDI IN FLOWS 33
Table: Trade And Investment Ratings 34
Operational Risk 35
Table: TOP EXPORT DESTINATIONS , 2002-2009 (US $mn) 35
Chapter 5: Key Sectors 37
Real Estate 37
Table: Th ailand’s Real Estate Market – Rentals, 2010-2012 (m²/month, US $) 38
Petrochemicals 41
Table: Th ailand’s Petrochemicals Sector, 2007-2015 (‘000 tpa, unless otherwise stated) 46
Other Key Sectors 47
Table: THAI LAN D Autos Sector Key Indicators 47
Table: THAI LAN D Defence and Security Sector Key Indicators 47
Table: THAI LAN D Telecoms Sector Key Indicators 47
Table: THAI LAN D Ph arma Sector Key Indicators 48
Table: THAI LAN D Oil and Gas Sector Key Indicators 48
Table: THAI LAN D Food and Drink Sector Key Indicators 48
Table: THAI LAN D Infrastructure Sector Key Indicators 49
Table: THAI LAN D FREI GHT Sector Key Indicators 49
Chapter 6: BMI Global Assumptions 51
Global Outlook 51
Japan Quake Adds To Global Risks
Table: GLOBAL ASSU MPTIONS 51
Table: EMER GIN G MAR KETS AGGRE GATE GRO WTH 52
Table: DEVELOPE D STATES REA L GDP GRO WTH FORECASTS 53
Table: CONSENSUS FORECASTS 53
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