Thailand economy:Sideways through 2Q16

Event

The overwhelming impression we received from the BOT’s June/2Q 2016data release is that there has been very little change over the past fewmonths. But at least sideways is better than down. In the absence of newshocks, we think the Thai economy can deliver growth of around 3.0%. Wemaintain our outlook for modest acceleration over 2016–18, based on ourmacro team’s forecast for a mild upswing in global industrial production. Weassume that this will provide some lift to demand for Thailand’s exports.

Impact

Domestic demand indicators weakened slightly overall in June vs May. TheBOT’s private consumption index decreased 0.3% MoM seasonally adjustedand YoY growth in the index slowed from 5.3% in May to 3.6% in June, theprivate investment index increased 0.3% MoM SA (up 1.3% YoY) and themanufacturing production index declined 1.2% MoM SA (up 0.8% YoY).

Private consumption decreased MoM, in the BOT’s estimation, primarily asvehicle sales faded following a boost from promotional campaigns and newmodel launches in the previous month. Consumer confidence continued todecline (according to the UTCC survey). However, the BOT commented thatthere was further modest improvement in farm income on rising agriculturalprices and some alleviation of drought conditions, along with modestexpansion in non-farm income. Tourist spending remained strong, with 7.2%growth in arrivals YoY in June (1H16arrivals growth 12% YoY).

Private investment remained low, with the BOT’s private investment indexshowing growth of 1.3% YoY. Imports of capital goods continued to declineYoY. Private sector credit growth remained between 4% and 5% YoY.

External accounts continued to show substantial trade and current accountsurpluses of US$3.8bn and US$3.0bn, respectively. Merchandise exportswere up 1.9% YoY (down 1.6% ex gold), while imports were down 9.3% YoY(down 9.7% ex gold). The BOT commented that there was a low base ofautomobile and rubber product exports last year. Relative bright spots wereexports of air conditioners, solar cell panels and integrated circuits & parts(attributed to demand ahead of the launch of new smart-phone models inSeptember)

Monetary policy was stable, with the BOT’s policy rate unchanged at 1.50%.We believe this anticipates recovery in headline CPI inflation through 2H16from a lower base for oil prices. We recently lowered our forecast profile forThai interest rates – please see ‘Thailand economy: G7financial repressiontrickles down’, 26July 2016for details.

Fiscal policy remained supportive with the start of disbursement of the‘Prachrat Project’ funds in June, increases in civil servants’ salaries and growthin capital expenditures YoY, primarily in transport infrastructure and irrigation.