Thai GDP growth rises to 6.4% for 2012
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Thai GDP growth rises to 6.4% for 2012


Thailand’s economy grew a robust 3.6 percent in the fourth quarter from the previous three months, taking the 2012 pace to 6.4 percent…

On an annual basis, economic growth in the fourth quarter was a record 18.9 percent, compared with 15.4 percent in the Reuters poll. A high figure was expected because of the severe economic damage from the flooding in the last three months of 2011.

For October-December, the Reuters poll had forecast quarter-on-quarter growth of 0.2 percent.

For 2013, the National Economic and Social Development Board (NESDB) maintained its previous forecast of 4.5-5.5 percent. Economists polled by Reuters have predicted growth of 4.7 percent this year.


That [being Q4 YoY] beat the median estimate of 15.3 percent in a Bloomberg News survey and is the fastest since Thailand began compiling data in 1993. The economy grew 6.4 percent in 2012 from 0.1 percent in 2011, when a deluge swamped most of the country.

The Bank of Thailand last month raised its 2013 GDP forecast to 4.9 percent from an earlier prediction of 4.6 percent, while maintaining its projection for export growth at 9 percent. Overseas sales increased for a fourth month in December, and the manufacturing index climbed for a third straight month.

Thai car sales by all producers reached a record 1.44 million in 2012, Toyota Motor (Thailand) said last month, helped by a tax incentive for first-time buyers. Bank loans grew 13.7 percent last year as companies rebuilt businesses that were devastated by floods at the end of 2011, with Bangkok Bank Pcl, the biggest lender, reporting full-year profit rose 21 percent.


“Overall, the Thailand economy is in a pretty good shape right now,” Rahul Bajoria, an economist with Barclays Capital told the BBC.

“It is unlikely that the central bank will cut rates anytime soon. The numbers clearly indicate that there is no urgent need to do that.”

As a result, Thailand’s government implemented various steps to help stoke domestic demand in an attempt to offset the decline in exports and sustain growth in the economy.

It raised minimum wages in various parts of the country, in some areas by as much as 40%.

The government also announced plans to spend 2tn Thai baht ($65bn; £40bn) on infrastructure projects after the devastating floods.

Analysts said that given the strong domestic demand and increased government spending, a rise in consumer prices remained a concern and may prompt the central bank to keep rates on hold in the short term.

Domestic demand momentum is certainly picking up and this will spill over into 2013,” said Eugene Leow of DBS Bank.

“The focus will likely turn towards inflation, especially considering the robust growth numbers.”


1. While 2012 GDP growth is skewed upwards because of the low base in 2011, 3.6% quarter-on-quarter growth in the Q4 is still impressive. Economic growth for 2013 is forecast at just under 5%. The economy is booming and this bodes well for the government because of increased tax revenue and jobs.

2. However, it seems unlikely that the Monetary Policy Committee will cut rates on Wednesday despite the Finance Minister wanting a further rate cut. Hence, the Baht will likely appreciate further hurting exports. On the Baht appreciation and limited policy options to prevent appreciation, Phatra Securities states:

 In our view, fundamentals would argue for baht appreciation in the coming months. First, G4 central banks are expected to maintain near-zero interest rates and asset purchases for this year and next. Second, Thailand is expected to maintain a current account surplus on the back of recovering exports which lays the foundation for baht strength. Third, interest rate differentials seem attractive to us, for example, the two-year govt. bond in Thailand yields nearly 3% vs. 0.25% for the US counterpart. BofAML’s forex team sees the baht ending the year at Bt28/US$. The baht is currently trading at Bt29.8/US$1.

In our view Thailand, a small open economy, would struggle to independently set an interest rate significantly higher than the near-zero interest rate prevailing in key countries which are determined also to continue with quantitative easing over the next several years. If the government will not impose a Tobin tax or similar measures, and if BoT intervention is questioned because of its already vulnerable balance sheet, then fewer policy options remain. The baht could be allowed to appreciate until inflation and GDP fall, thus justifying a subsequent rate cut, but the economy would suffer and monetary policy would appear to be reactive. Alternatively, the BoT could devise its own capital control measures. We do not believe the BoT would yield to a rate cut unless no options are available or the BoT is outvoted in the MPC.

BP: Capital controls are still unlikely, but will tensions between the Central Bank and the Finance Minister increase after the policy rate is almost certainly not cut on Wednesday?

3. The increased GDP growth also helps with the public debt as % of GDP ratio. While Thailand has a reasonably large budget deficit, strong GDP growth means increases in public debt as % of GDP is still quite low each year. The relevance of this is that BP views that if public debt as a % of GDP hits 50% during the first term it will pose political problems for the government.* This will lessen pressure despite the large spending on various policies, particularly the rice pledging scheme.

*Will explain why the threshold of 50% and the political problems in a future post.