The military junta has been successful in returning Thailand to po- litical stability following the ---- coup, but we are not yet willing to upgrade the country s low Political Risk Index scores as fundamental divisions between the red shirts and the yellow shirts remain, and the impending royal succession has the potential to trigger renewed unrest. Thailand s real GDP growth of -.- y-o-y in Q--- reflects the positive impact of the government s renewed infrastructure drive and the negative effects of weakening external demand. With the construction sector likely to continue to benefit from a number of major project commencements, and low oil prices having a positive impact on the country s terms of trade, we forecast real GDP growth to pick up slightly to -.- in ----, from -.- in ----. We hold a mildly bullish view on the Thai baht as we believe that the terms of trade gains due to falling raw material input prices will continue to support the country s current account, while there is scope for portfolio flows to return following a lengthy period of outflows. Falling external demand from China, and yuan weakness, together with the potential for a renewed flare-up in political risk, are main downside risks facing the baht. ...While the military government will continue to increase spending to sustain Thailand s economic recovery, positive steps taken to rein in wasteful spending will keep expenditure growth in check. Coupled with the prospects for higher fiscal revenue on the back of a gradually improving economy and the windfall receipts from the recent spectrum auctions, Thailand should have the fiscal resources to finance its eight-year master infrastructure plan.
...In terms of the breakdown of real GDP growth, the construc- tion sector was a significant driver, thanks in large part to the government s infrastructure-based stimulus package that began in latter part of ----. The construction sector expanded by --.- y-o-y in Q---, contributing -.- percentage points (pp) to growth, and we expect construction to continue outstrip- ping headline expansion in ----. ...From an expenditure perspective, gross fixed capital formation showed the largest contribution to headline growth, adding -.-pp in y-o-y terms, and expanding by -.- . The bulk of this was driven by publically funded construction projects, which expanded by a whopping --.- y-o-y, but there was also a positive net contribution from the private sector following two consecutive periods of contraction. Machinery and equipment manufacturing expenditure also returned to growth following two consecutive quarterly contractions. ...Machinery and equipment manufacturing expenditure also returned to growth following two consecutive quarterly contractions. The external side of the economy was the weak link from an expenditure accounting perspective, acting as a -.-pp drag on - Business Monitor International Ltd www.bmiresearch.com
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