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Thailand’s stable external balance is not enough, in the eyes of investors

Jun 24. 2018
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WE RECENTLY met with Singapore-based corporates and institutional investors to present our latest views on Thailand. Investors remain constructive on the country’s economic fundamentals and believe the recent pressure on emerging markets has been mostly driven by unfavourable external factors such as broad US dollar strength, higher global interest rates and rising oil prices.

However, the consensus view was that Thailand lacks a compellingly strong growth story. We were not surprised by this perception, as consensus views on Thailand’s growth have been muted for many years, even as macroeconomic data has continued to improve. Investors see current growth as sluggish. While we agree that private investment remains lacklustre, we see promising signs of growth in other parts of the economy. We forecast GDP growth of 4.3 per cent in 2018, and expect the consensus forecast of around 4 per cent to be increased – particularly after first-quarter growth reached almost 5 per cent year over year, the fastest in five years.

Investors were more focused on domestic than external risks, given that the Thai baht has been considered a safe haven thanks to a large and stable current account surplus – even amid rising oil prices. We highlighted our view that tourism is likely to stay strong, despite negative factors such as the baht’s strength, pollution concerns and capacity constraints. We flagged flooding as a key domestic risk to watch, noting rising water levels in Thailand’s major dams; good water management is needed to reduce the risk of future flooding that could hamper growth.

Investors asked about Thailand’s unusually flush onshore liquidity (currently at Bt2 trillion), which we think will persist for now. While some infrastructure mega-projects are already under construction, part of the borrowing for these projects may not take place until 2019-20, when most of them are expected to be at their construction peak. 

While our latest client survey showed that companies are generally confident in the outlook for the Thai economy, we think they may want more clarity on the policy direction under an elected government before making investment decisions.

Investors expressed the view that “animal spirits” in the Thai economy need to be revived. The key question is what could make that happen. Our core view is that general elections – or even the announcement of an exact election date – could be such a catalyst. Given current low expectations, any political progress would significantly boost sentiment and, therefore, Thai assets in the short term. Our recent conversations with investors suggest that they widely expect policy continuity after elections. However, it remains to be seen whether this can provide a longer-term boost to the economy via new growth catalysts.

The hope is that the Eastern Economic Corridor (EEC) will provide such a catalyst. The EEC is not just about infrastructure, but also private investment. 

We think the project will boost Thailand’s long-term growth prospects through infrastructure investment, technological development, and enhanced regional integration via improved transport connectivity with Asean (and possibly also China and India).

However, despite improving investment data, Thailand’s private investment is not at full throttle yet. Most current projects are expansions or enhancements of existing production facilities. We continue to await evidence that growth in EEC investments has enough underlying momentum to be sustainable.

Contributed by TIM LEELAHAPHAN, economist, Thailand, at Standard Chartered Bank.

This article is reproduced with permission of Standard Chartered Bank. It is based on Global Research reports originally published on May 28, 2018 and June 15, 2018. It is subject to the Standard Chartered Bank general disclaimer, which is available at


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