Economics Thailand chart book Asia s safe haven Group Research 11 October 2018 Radhika Rao Economist Please direct distribution queries to Violet Lee +65 68785281 violetleeyh@dbs.com Thai markets have been remarkably untouched by the selloff in Asia this year. The economy is on course to expand 4.5% YoY, after a strong 1H18 and up from 3.9% in 2017. Base effects and some spillover impact from rising trade protectionism might moderate 2019 growth to 4.2%. The external sector has yet far belied concerns over a negative impact from US-China trade disputes, with strong exports trend helping to keep the current account surplus at 9.5-10% of GDP this year, before slowing to 8% in 2019. Inflation has shrugged off a slow start to the year, lifted by supply-side pressures, particularly high oil prices. We expect full-year inflation to average 1.3% YoY, before rising to 1.6% next year on a higher core. The Bank of Thailand signaled its readiness to normalize rates, but a hike is not imminent given manageable inflation and a stable currency. Policy tightening expectations might resurface late-2018 and early next as the US continues to hike rates, and the spillover impact weighs on EM. An upside surprise in Thai growth could also be another catalyst for the BOT to hike in 2019. Refer to important disclosures at the end of this report.
Growth Better private consumption demand is being upheld by higher durables, which has helped offset the impact of a slower pick-up in non-durables and weaker service output. Rise in non-durables consumption remains modest but is likely to improve as farm incomes rise on higher agricultural output and better prices. Consumer confidence indices are holding up five-year highs. Private investment indicators are mixed, with the index in a holding pattern in recent months, whilst capital imports (value terms) moderate at the margin. Cement sales and commercial pickups have, however, fared well. Improving capacity utilisation provides an impetus to manufacturing production trends, whilst also helping to draw-in capex interests. Page 2
External trade Thai exports and imports growth have moderated in recent months, with imports still outpacing shipments, slowing the trade surplus. The 12MM sum surplus narrowed from USD1.3bn in Dec17 to USD0.6bn by August 2018. Despite the trade war overhang, manufacturing products that make bulk of Thai s exports, are up this year, +10.5% YoY (vs 9.3% in 2017) on year-to-date basis. Easing tourism arrivals risk hurting service receipts, with growth implications as the sector makes up ~12% of GDP. Efforts have been targeted at raising CMLV travellers and raising spending per trip to increase revenues. East Asia accounts for the biggest tourism sector for Thailand. China makes up a third of the total arrivals. Recent tragedies have, however, slowed the flow of these visitors, including a fatal ferry accident and likely tighter regulations over Chinese operators. Page 3
External balances Current account math is comfortable but easing service sector receipts (due to slower tourism earnings) and fallout from trade war concerns might narrow the surplus to around 9.5-10% of GDP in 2018 vs 11.2% in 2017. Strong outbound FDI flows has been a drag on the BOP as Thai companies seek to improve their competitiveness, diversify their portfolios and seek an alternative to a slower domestic private investment cycle. Next year s election is expected to address underlying political stability concerns. Inflation Thailand inflation rose from nearly flat at the start of the year to 1.4% YoY in August-September, well within he BOT s 1-4% inflation range. Cost-push forces rather than better demand is behind the rise in the headline print. Breakdown of inflation sub-components highlights the persistence of supply-side factors, with the contribution of Transport & communication (due to higher energy prices) and despite a small support from subsidies. Page 4
Capital flows and Monetary Policy Investors in Thai bonds have sat up and taken notice of the hawkish tilt in the Bank of Thailand (BOT). This has lifted the 2Y and 10Y rates, helped also by 1H growth firmly above 4% mark. The BOT s move to signal a shift towards a less accommodative policy does not, however, imply an imminent rate hike. Inflation risks as shown above are non-threatening, whilst the Thai baht continues to buck the regional FX sell-off. The largely steady USD/THB exchange rate is also accompanied by a steady currency on inflation-adjusted REER (BIS) basis. This lowers the scope for premature hikes, which risk adding to THB gains and hurting competitiveness at the margin. Besides strong external balances, the reserve backstop is also comfortable, with the foreign reserves only marginally down (~USD10-12bn from April s highs) in recent months. Page 5
Forecasts on major indicators GDP (YoY) CPI inflation (YoY) 2016 2017 2018f 2019f 2016 2017 2018f 2019f Annual change (%) 3.2 3.9 4.5 4.2 0.2 0.7 1.3 1.6 Exchange rate and interest rates forecasts 1Q18 2Q18 3Q18f 4Q18f 1Q19f 2Q19f 3Q19f 4Q19f USD/THB eop 31.2 33.0 32.3 34.0 33.8 33.6 33.4 33.2 BOT rate (%, eop) 1.50 1.50 1.50 1.50 1.75 2.00 2.00 2.00 Government bond yields 2Y (%, eop) 1.32 1.69 1.89 1.60 1.85 2.10 2.35 2.60 10Y (%, eop) 2.40 2.58 2.80 2.70 2.80 2.90 3.00 3.00 10Y-2Y (bps) 107 89 91 110 100 90 80 60 Page 6
Group Research Economics & Strategy Taimur Baig, Ph.D. Chief Economist - G3 & Asia +65 6878-9548 taimurbaig@dbs.com Nathan Chow Strategist - China & Hong Kong +852 3668-5693 nathanchow@dbs.com Masyita Crystallin Economist Indonesia & Philippines masyita@dbs.com Joanne Goh Regional equity strategist +65 6878-5233 joannegohsc@dbs.com Neel Gopalakrishnan Credit Strategist +65 6878-2072 neelg@dbs.com Eugene Leow Rates Strategist - G3 & Asia +65 6878-2842 eugeneleow@dbs.com Chris Leung Economist - China & Hong Kong +852 3668-5694 chrisleung@dbs.com Ma Tieying Economist - Japan, South Korea, & Taiwan +65 6878-2408 matieying@dbs.com Radhika Rao Economist Eurozone, India & Thailand +65 6878-5282 radhikarao@dbs.com Irvin Seah Economist - Singapore, Malaysia, & Vietnam +65 6878-6727 irvinseah@dbs.com Duncan Tan FX & Rates Strategist - ASEAN +65 6878-2140 duncantan@dbs.com Samuel Tse Economist - China & Hong Kong +852 3668-5694 samueltse@dbs.com Philip Wee FX Strategist - G3 & Asia +65 6878-4033 philipwee@dbs.com Sources: Data for all charts and tables are from CEIC, Bloomberg and DBS Group Research (forecasts and transformations). Disclaimer: The information herein is published by DBS Bank Ltd (the Company ). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified. DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. Page 7