Thai economy:Softly stable

Event.

The Bank of Thailand’s data for February showed little change from the recentpattern of soft domestic demand and external trade, with support from astrong tourism sector and government spending. The Monetary PolicyCommittee’s (MPC) updated quarterly forecasts showed no change from therevisions published with the recent MPC policy statement, which promptedour recent GDP forecast cut (please see ‘Thailand economy: Slower forlonger’, 24 March 2016 for details). We make no further revisions to ourforecasts at this point.

Impact.

Domestic demand indicators were broadly stable in February vs January.

The BOT’s private consumption index increased 0.3% MoM (up 3.1% YoY)and the private investment index was down 1.0% MoM (up 2.0% YoY).

Consumption was stable overall however the durables component of theBOT’s PCI index remain weak (-6.9% YoY), indicating a reluctance to spendon bigger ticket/discretionary goods. Tourist spending was again the strongestelement of overall consumption (up 3.4% YoY). The BOT’s commentary ledwith tourism, highlighting 16% growth in tourist arrivals YoY, led by touristsfrom China.

Private investment indicators showed continued weakness in construction(new permits -0.7% YoY, while the BOT’s construction materials index was up1.0% YoY) and capital goods imports.

External accounts continued to show underlying declines in merchandiseexports & imports, with exports down 4.0% (excluding unusually strongexports of gold) and imports down 16.3% YoY in February. This resulted in aneven larger trade and current account surplus in February. There was amodest deficit on the capital account, hence another large balance ofpayments surplus of US$6.07bn.

Monetary policy remained unchanged, as per the MPC’s recent commentsand remains on the tight side, in our view, with the BOT’s policy rate at 1.50%.

However, we maintain our forecast for no further easing from the BOT andcontinue to expect modest incremental stimulus from fiscal policy in 2016.

Fiscal policy remains supportive with an increasing trend of governmentspending relative to revenues vs recent years.

Outlook.

We make no changes to our macro forecasts at this point. Private sectordemand and external trade demand remain soft and we believe 2016 will feelvery similar to 2015 for many industries in Thailand. Tourism arrivals growthremains the one bright spot in terms of private sector demand andgovernment spending remains our main hope for a slight acceleration in GDPgrowth in 2016 to 3.0% from 2.8% in 2015.