Thailand economy:Government support to continue

While 3Q16 GDP growth at 3.2% YoY (real) was slightly above our forecast of3.0%, we maintain our full-year GDP growth forecasts at 3.2/3.3/3.5% for2016-2018, respectively. The 3Q16 beat is not large enough to move our2016 number. Further, we believe temporary softness in certain areas ofconsumption and business spending due to the mourning period and somenear-term weakness in mainland Chinese tourist arrivals could impact 4Q16.

However, we think the government remains primed to offer support andstimulus through a similar range of measures to those seen over the past 12months (elevated investment spending, ad hoc temporary tax incentives toboost consumption, rural and agricultural support measures etc), both in 4Q16and 2017. With total public debt at 42% of GDP, there is room to spend.

Private consumption held up rather better than we expected in 3Q16 withgrowth of 3.5% YoY, slightly slower than 3.8% in 2Q16 but up from 2.1% forthe whole of 2015. We concur with the NESDB’s projection for 3.0%consumption growth for 2016.

Private investment remained weak in 3Q16, declining 0.5% YoY, consistentwith flat performance from the Bank of Thailand’s private investmentindicators through the quarter.

Government investment remained one key pillar of support for Thai GDPgrowth in 3Q16 with 6.3% YoY growth. Government consumption spendingactually dropped 5.8% YoY. However, this was largely due to fasterdisbursement of the fiscal budget earlier in the fiscal year to September 2016.

External sector. A large current account surplus was also supportive at10.2% of GDP vs 8.1% in 2Q16 and 8.2% in 2015.

We maintain our 2016-18 forecasts for Thai real GDP, CPI inflation, interestrates and Baht/USD. Conceptually, our outlook for the Thai economy in 2017is very similar to the NESDB’s. The agency forecasts 2017 growth in therange of 3.0%-4.0%, driven by 1) a slow recovery in exports, manufacturingproduction and private investment; 2) recovery in agricultural production; and3) continued high growth in public investment. The NESDB also forecastsprivate consumption growth of 2.7% in 2017, another substantial currentaccount surplus of around 10% of GDP and headline inflation of 1.0%-2.0%.