Demand in Asean, China, US to push export growth to 2% next year: UOB

Exports account for 70 per cent of the country’s gross domestic product. They managed to pick up in October, expanding by 4.1 per cent year on year to US$20.16 billion (Bt663.3 billion), the best in 2014, and UOB expects full-year export growth of 0.3 per cent.

“Risks for Thailand’s economy next year will be a serious slowdown in China, which we do not see,” said Francis Tan, Asian economist at UOB’s head office in Singapore. “Their economy will be supported by the monetary reforms that the Chinese government is doing and their own version of QE [quantitative easing], so there will be no hard landing. 

“And Thailand’s exports to the US will be pretty strong next year because of the healthy economic growth of the US ... led by the recovery of their net payroll, improvement in the housing market, unemployment going toward 5 per cent, and the increase in consumer confidence.” 

UOB expects Thailand’s gross domestic product to expand by 0.7 per cent in 2014 and 4 per cent in 2015. The economic growth next year will be driven by a recovery in domestic consumption and investment as well as steady growth in exports. 

The bank predicted that China’s GDP growth in 2015 would drop slightly to 7.2 per cent from this year’s 7.4 per cent. The euro-zone, Japanese and US economies are expected to improve, with GDP expansions of 1.1, 1.0, and 3.2 per cent in 2015 compared with 0.8, 0.7, and 2.7 per cent in 2014.

Tan said the Thai manufacturing sector was likely to be the lead economic driver. UOB expects the sector to expand by 5.6 per cent in 2015, sizeable growth when compared with the 1-per-cent contraction this year. The manufacturing sector currently accounts for 38 per cent of GDP.

According to the World Bank, Thailand’s GDP was $387.3 billion as of the end of 2013.

Tan believes the central bank’s Monetary Policy Committee will maintain the key interest rate at the current 2 per cent for the whole of 2015. However, there is a possibility that it will increase the lending rate before the June meeting of the US Federal Open Market Committee, when UOB expects the Federal Reserve to raise the US benchmark rate.

UOB expect the Fed to increase the policy interest rate from the current 0-0.25 per cent to 0.50 per cent in June, then to 1 per cent by the end of the third quarter, and end the year with a 1.25-per-cent rate backed by expectations of a stronger US economy in the years to come. UOB also predicts that the US rate will be 3.25 per cent by the end of 2016.

Tan expects the baht next year to weaken to 34.1 per US dollar by the end of the first quarter of 2015 because of a stronger dollar. The normalisation of US interest rates in the second half of 2015 will also put downward pressure on the baht, but he expects the currency to get gradually stronger in second and third quarters on stabilisation of the Thai economy before ending the year at 33.4.