Risks stay, Moody’s says

“In line with the diverging growth path across the Asean region, Thailand is picking up from multi-year lows,” Christian de Guzman, vice president and senior credit officer for sovereign risk at Moody’s in Singapore, said yesterday.
“Meanwhile, the Thai government is also stabilising the economic situation to drive gross-domestic-product growth, which was recently announced at 2.8 per cent,” he said. However, the most critical concern for the economy is political uncertainty, which has affected foreign direct investment for more than a decade.
“From our assessment, the domestic political risk in Thailand is considered the highest among Asean countries.
“Such risk still weighs on FDI in the Kingdom as well as Thai economic performance,” he said.
In 2004, Thailand received more than 40 per cent of total foreign investment in this region. Because of the prolonged political instability, its FDI share went on a downward spiral until the present day.
Meanwhile, in Vietnam, FDI continued to grow in the last couple years because its broad policy remained unchanged in line with its competitive advantage from labour costs and improving infrastructure, despite a political transition. A return to civilian rule after an election in Thailand might help ameliorate the political risk.
“If there is an election next year, this might create a positive factor for the Thai economy, not only for attracting foreign direct investment but also for domestic investment. So the election can help boost that sentiment.”
Alka Anbarasu, vice president and senior analyst for financial institutions, pointed out that besides instability in the political system, household leverage was still high and domestic consumption was also weak.
However, Moody’s outlook for the Thai banking system was stable, as it has been since 2010. The stable outlook reflects primarily banks’ strong loss absorption buffers.
Weak economic growth will remain the system’s key operating challenge.
Moody’s baseline scenario assumes that real GDP growth will run at 2.8 per cent this year and 3.0 per cent next year – a subdued pace, given the country’s growth potential.
Sluggish exports will prove a key driver of the modest growth rate.
While stimulus measures from the government could provide some countercyclical support, they will do little to address the key domestic concerns that weigh on private demand, including high household leverage, continuing political uncertainty and the lack of structural improvements for the country’s export-oriented manufacturing infrastructure.
Meanwhile, the SCB Economic Intelligence Centre has revised its GDP growth forecast for this year from 2.5 per cent to 2.8 per cent to comply with the bright prospects of private investment and public disbursement, said Sutapa Amornvivat, first executive vice president and chief economist.
The National Economic and Social Development Board last week reported that GDP in the first quarter grew by 3.2 per cent – a three-year high. She said that even though the public budget in the first quarter was not increased much, quick disbursement had enough of a multiplier effect to drive private investment, especially residential construction and equipment procurement.
Pipat Luengnaruemitchai, assistant managing director for research at Phatra Securities, however, has scaled back the brokerage’s GDP growth forecast for this year to 2.8 per cent from 3.2 per cent because public investment and the tourism boom will buoy the economy only for the short term.
However, the securities house believes the economy can expand at 3.2 per cent next year, triggered by private investment.
Revenue from tourism has been concentrated in certain cities. That could not be a sustainable factor for GDP growth.
The high level of household debt will brake growth in the country because consumers will take their money to pay off debt first before considering spending, he said.