HSBC more bullish about Thai economy in 2017-18

Nalin Chutchotitham, an economist at HSBC Thailand, said that the key upsides for the economy were public investment, private consumption and exports of services, mainly from tourism. These drivers also helped to offset the drag from sluggish exports of goods, private investment contraction, and continued de-stocking.
In 2017, HSBC expects public investment to remain one of the key drivers of gross domestic product although it will likely decelerate after a surge in 2016.
“Our more positive outlook also takes into account the ample fiscal room. The planned fiscal year 2017 [the year ending in September] budget deficit of Bt390 billion, representing 2.7 per cent of GDP, can be legally raised by as much as 50 per cent if needed,” Nalin said. 
“The cabinet approved a Bt190-billion supplementary budget on December 7, 2016, which is expected to be passed by Parliament by early February 2017, possibly raising the deficit ratio to 3.3 per cent. Still, we expect the public debt-to-GDP ratio to remain below 50 per cent at the end of fiscal year 2018.” 
The bank said that lingering external uncertainties such as US trade policies and Asia’s growth would likely keep exports subdued, but its drag on overall growth would likely be reduced from 2016. 
Export market share in most markets have been maintained so far, while tourism is likely to rebound after the temporary effect from the crackdown of some illegal tourism schemes fades, it said.
HSBC said liquidity would remain abundant, supported by stable deposit growth and a large current account surplus. 
It said the economy was unlikely to return to its pre-global financial crisis pace of growth soon as high household debt and lower credit quality among small and medium-sized enterprises still weighed on growth.
The domestic demand recovery needed the support of several rounds of stimulus measures, including an agriculture subsidy. Furthermore, structural problems remained, such as low household savings, ageing demographics, and weaker export competitiveness.
The monetary policy stance is likely to remain loose and the policy rate is expected to remain at 1.5 per cent until end of 2018, according to Nalin. She noted that this was because the central bank continued to cite concerns about the fragile global recovery and uncertainty in major economies’ policies that could induce financial market volatility and impede the economic recovery of Thailand’s trading partners. 
Moreover, demand-pull inflationary pressures should be limited, even if growth proves more robust than expected, she said, adding that inflation expectations have remained stable so far and both the core and headline inflation rates were surprisingly on the downside in 2016, partly due to businesses’ lack of pricing power. 
Consequently, HSBC has tweaked its headline inflation forecasts for both 2017 and 2018, reducing them to 1.7 per cent and 2.0 per cent from 2.0 per cent and 2.1 per cent, respectively.
With an election planned at around end of 2017 or in early 2018, policy continuity with regards to economic reforms will depend on the incoming government, HSBC said. However, some of the key reforms may have been completed by the end of 2017, such as the new public finance legislation bill, the amendment to the competition law, and a new state enterprise law. These laws will allow for higher potential growth through, for instance, more efficient state enterprises and a stronger business environment, the bank said.
The public infrastructure investment plan and policies have changed but only little and are unlikely to be overhauled now, it added.