StanChart predicts Thai GDP will grow 6 per cent

StanChart is the only financial house that has pegged Thailand’s growth in 2015 above 4 per cent, while the consensus and the Bank of Thailand don’t expect the figure to exceed 4 per cent.

Usara Wilaipich, senior economist at StanChart, said Thailand has the potential to grow by 4 per cent this year based on a functioning government that can go ahead with public investment as scheduled. However, the low crude oil price is a trigger point in accelerating the Kingdom’s economy because Thailand is a net oil importer.

“If we look back at 1986, crude oil price dropped to US$67 per barrel, and a year later the Thai economy expanded by 9.5 per cent against 5.5 per cent in 1986. After that foreign direct investment flooded in and Japanese manufacturers, in particular, shifted their production base to Thailand. We believe the cycle of investment from private sector and foreign direct investment will come again and this will accelerate growth of the Thai economy in 2015 until 2016,” she said.

Thailand is among the economies more sensitive to oil prices. The low oil price will boost consumption in the private sector and it will be an incentive for investment because the sector will enjoy low operational cost, she added.

She said investment will be the new engine to drive the Thai economy instead of exports, adding that the automobile industry will show bright prospects after this industry released the existing inventory.

The Board of Thailand in 2014 approved projects valued at Bt700 billion, which shows that the country remains an investment destination for investors.

StanChart predicts that private investment this year will grow by 7.6 per cent after seeing drops for two successive years.

The economist believes government investment this year will be the driver of the economy, with an expected growth of 11.6 per cent. A clear picture on government investment will become visible in the second quarter. Also, the government has a fiscal budget of Bt100 billion brought forward from last year and if the government can succeed in creating special economic zones in border provinces, this will lure foreign investment.

Japan, China and South Korea are ready to inject new investment in Thailand, as they see Thailand as the regional hub. 

Foreign investors do not view Thailand as a single market but as a springboard to CLMV (Cambodia, Laos, Myanmar, Vietnam).

“If Thai GDP in 2015 expands 6 per cent as we expect, then GDP could grow by 6.5 per cent in 2016,” the economist said. 

She added that the healthy growth in Thailand would attract investors to the Thai equity market. Foreign investors have had low investments in Thai equity for four consecutive years.

When the Thai economy shows signs of healthy growth, the Bank of Thailand might consider increasing the policy rate from 2 per cent to 2.5 per cent by the end of this year. However, a 2.5 per cent rate would be low compared to the GDP growth. 

Economic growth, not inflation, will be a crucial factor for the central bank in making a decision on increasing the rate, she said.

Thailand’s policy rate is low compared with 3.25 per cent in Malaysia, 4 per cent in the Philippines and 7.75 per cent in Indonesia.

If there is a functioning government in Thailand and political stability, the StanChart Group sees Thailand as among three countries in Asia who will be outperformers. The other two are India and Indonesia.