Thailand’s economy is rapidly gaining momentum on loose monetary and fiscal policies, but it may be growing too quickly for its own good, according to Nomura Research.
Thai authorities have insisted that they remain conscious of not compromising fiscal sustainability. The medium-term fiscal plan, which incorporates large-scale infrastructure spending, is to keep public debt below 50 per cent of gross domestic product, allowing a 10-percentage-point buffer against external shocks given the legal limit of 60 per cent of GDP. Authorities envisage a balanced budget by 2017, which implies that short-term measures that were criticised as populist are likely to be allowed to expire.
Nomura maintains its economic growth forecast for Thailand – 4.5 per cent versus 6.4 per cent last year – but is biased towards an upward revision. At this level, Thailand will outperform all countries in Southeast Asia except Indonesia, which is expected to expand by 6.1 per cent this year. Given the robust outlook, Nomura is comfortable with its forecast that the Bank of Thailand will keep its policy rate unchanged through 2013.This assumed that inflation would not breach the target. While inflation is still low, domestic demand is very strong.”In our view, if the BOT had it its way, it would hike policy rates in the second half, but it faces strong political pressure to cut the policy rate further in a bid to stem the baht appreciation.”
On political risk, Nomura said discussion of the amnesty bill is ongoing, while the referendum on the constitutional amendment may be delayed, suggesting Prime Minister Yingluck Shinawatra is taking a more a practical approach and not pushing the agenda too hard. Overall, the political environment remains calm, but there are potential flashpoints.