KBank Capital Markets Perspectives 29 February 2016 Thailand Economic Monitor and BoT Forecast : March 2016 Thailand s economy steadied in February, though domestic demand decelerated slightly from January after government s stimulus measure concluded. Foreigners demand to visit Thailand improved more broadly. The increase in public servant salary and investment by state-enterprises helped sustain the economic momentum. The BoT revised down most of the economic indicators, as risks to growth remain tilted towards the downside. The economy is expected to be supported by public spending and the tourism sector. Domestic demand is expected to slow down to 1.8% against an earlier forecast of 2.8%. Exports are expected to contract by 2%, as opposed to earlier forecast of 0% growth. Large current account surplus and weak domestic demand will keep Thailand s current account surplus afloat, hence, supporting for THB rise. In the press conference, the BoT spokesperson said the MPC could lower rates further if warranted. As such, we expect the BoT to cut policy rate by 2bps in Q2/1 to 1.2%. % YoY 4. 4.0 3. 3.0 2. 2.0 1. 1.0 0. 0.0-0. Nattariya Wittayatanaseth nattariya.w@kasikornbank.com Anchali Singh The BoT revised down GDP forecast 2.8 2.9 3.0 3.2 3.4 3. 1Q14 3Q14 1Q1 3Q1 1Q16* 3Q16* 1Q17* Real GDP (%YoY) Sep- 1 projection Dec- 1 projection Mar- 16 projection anchali.s@kasikornbank.com 3.2 Disclaimer: For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request. 1 1
Thailand s economy steadied in February Thailand s economy steadied in February, though domestic demand decelerated slightly from January. Tourism continues to generate positive multiplier to other sectors, i.e. trading, hotel and restaurants, and transportation. Government spending and investment partially helped offset the slowdown in private consumption as government year-end stimulus measures concluded. Weak external demand still weighed on private investment, with a drag from raw materials of capital goods. Production sector remains under pressure, dragged by automobile industry, following the rise in automobile excise tax. Exports reversed to positive, but the underlying reason was not positive. Foreigners demand to visit Thailand improved more broadly. While, the number of Chinese incomers continue to accelerate, the number of tourists from Malaysia, Europe, Japan and Russia picked up in February, resulting in a 16%YoY increase in total tourism arrivals to 3.09mn persons in February, in line with January. Service sector continued to expand, following a strong growth in tourism sector; thus, helping support Thailand s labor market as lay-off workers from manufacturing sector and drought-affected farmers migrate into tourism-related industries. 14% Although the pace of government spending eased from January, the increase in 10% public servant salary and investment by state-enterprises helped sustain the economic momentum. Government disbursement grew 13.4%YoY, driven by 6% operational budget (+16.6%YoY); however, investment budget grew by a marginal 2% 2.0%YoY as the government had frontloaded investment in Q4/1. -2% Consumption rebound eased off, as spending growth rose only 0.3%MoM in -6% February (+3.1%YoY from +2.0%YoY). The conclusion of government s 1,000 tax -10% rebate measure and the implementation of automobile excise tax put pressure on spending on semi- and durable goods (-0.8%YoY and -11.%YoY) for the 2 nd month. -14% The drought crisis remains Thailand s main obstacle, as reflected by the 9.4%YoY fall in farm income and 7.4%YoY fall in commodity price. Nonetheless, we are not year concerned as overall spending on non-durable goods continued to expand at 4.3%YoY from 3.1%YoY in January. Tourism continues to generate positive multiplier to other sectors 3,200 7 3,000 2,800 70 2,600 2,400 6 2,200 60 2,000 1,800 1,600 1,400 0 1,200 1,000 4 800 40 Jan-13 Jul-13 Jan-14 Jul-14 Jan-1 Jul-1 Jan-16 Tourist arrival ('000 left axis) Hotel occupany rate (right axis) Consumption decelerated on semi- and durable goods 3% Total private consumption 4% Spending on non-durable -4% Spending semidurable -13% Spending on durable goods 201 1/2016 Feb-16 10% Spending on service 2
Current account surplus rose to a record high Private investment decelerated to 2.0%YoY in February from 3.1%YoY, as car sales Current account surged to record high due to trade surplus declined.1%yoy. Nonetheless, the drag was completely offset by 4G infrastructure USD, bn.0 investment in telecommunication sector. Government investment projects also benefitted construction material which managed to grow 1.7%YoY for the first time since 4.0 3.3 201. However, we have not seen clear sign of private investment recovery due to weak 3.0 2.6 2.6 2.3 2.3 domestic demand and low business confidence. Moreover, credit standards have 1.8 1.9 2.0 1.6 1. 1. 1.4 become tightened over recent periods, both for corporate and SMEs. 0.4 0.9 0.9 1.0 0.3 0.4 0.4 Weak demand and a slowdown in automobile production pushed production back into negative territory. The MPI index declined 1.6%YoY following a 3.%YoY fall in 0.0 January. Apart from waning automobile production, production of textile and garments, -1.0-0.7-0.6-0.6-0. and hard-disk drivers remained negative due to a shift in consumer demand towards -2.0 solid-state drive. The bright star for production was probably rubber as sellers Jun-14 Sep-14 Dec-14 Mar-1 Jun-1 Sep-1 Dec-1 frontloaded exports before the agreement between Thailand, Malaysia, and Indonesia, Trade balance Trade balance, excluding gold to limit rubber exports comes into effect in August. The 6.2% rise in February exports was boosted by gold and jewelry in response to Hong Kong International Jewellery Show and the sharp rise in gold price. However, stripping off the impact of gold export which totaled to as much as USD 1.89bn, overall exports contracted 4.0%YoY. Most products witnessed slower demand, especially petroleum-related items, i.e. petrochemical and chemicals. The only products that saw material improvement was sugar. Sugar demand surged as ASEAN countries who expect the drought crisis will shore up sugar price. Imports continued to post a double-digit drop, falling 16.3%YoY from a 17.8%YoY fall with across the board weakness observed. The most concerning point was imports of raw materials and intermediate goods fell sharply, suggesting that recovery in exports remains dampened. Current account surplus rose to a record high at USD 7.4bn, driven by trade surplus, totaling USD 6.0bn in February. This resulted in net positive balance of payment which partially explained THB strength in February; USD/THB averaged 3.16 in February from 36.1 in January. % YoY 8 4 0-4 -8-12 -16-20 -24 Thailand s February economic momentum steadied -1.6-3. 2.0 3.1 3.1 2.0-9.3 6.2-16.3-17.8 Manufacturing Consumption Investment Exports (USD) Imports (USD) Nov-1 Dec-1 Jan-16 Feb-16 3
GDP 2016 Private consumption Private investment Public consumption Public investment Goods exports Goods imports Core inflation Headline inflation The BoT downgraded its economic forecast The BoT revised down most of the economic indicators, as risks to growth remain tilted towards the downside. The Thai economy is expected to grow slower than expected. As such, the BoT revised down it s GDP forecast to 3.1% from the previous level of 3.%. Risks to the economy mainly come from the slowdown in the world economy, that has had a huge impact on Thai exports. Furthermore, structural changes in the world and domestic economy have also had a diminishing affect on exports. Monetary policy divergence around the world also poses a threat to the economy. Essentially, the search for high yield in Thai assets could also pose as a threat to the Thai money market. On the domestic front, domestic demand is expected to slow down to 1.8% against an earlier forecast of 2.8%, as employment numbers in the manufacturing sectors are expected to decrease due to the contraction in export numbers. Essentially, the slowdown in exports is expected to have an impact of employment, as such, household have become cautious in their spending. The economy is expected to be supported by public spending and the tourism sector. The BoT expects the economy to be supported by public spending. The forecast for public investment was raised from 8.8% to as high as 10.7%, as the disbursement of public expenditure was better than expected. Furthermore, public expenditure will likely receive a boost from additional receipt from 4G auctions. Tourism sector is expected to continue supporting the economy, as current trends point towards a higher number of tourist arrivals in Thailand this year. The forecast of tourists arrivals was revised upwards to 32.4mn from 30.9mn arrivals. The increase in air routes my low cost airlines, and the new road routes from China to Thailand, are expected to boost tourism arrivals this year. The contraction in exports poses a risk to the economy. One of the main forecast revision is the downgrade in export growth (in USD terms). Exports to all trading partners are expected to contract, except for exports to the CLMV market, which amounts to only 10.4% of the total Thai exports share in 201. %QoQ SA, %YoY 8 7 6 4 3 2. 2 0.8 1 0-1 -2 % YoY 13 11 9 7 3-1 1-3 - -7-0.1 0. -0.6-0. 0.7 0.8 0.9 0.9 0.9 Economic projection for 2016 3.3.1 3.9 2.8 3.4 1.8 2.4 3.3 Economic Performance Dec '1 March '16 10.7 8.8 2.1 0.0 0. 0.4-2.0 3.0 2.7 2.9 2.8 0.9 0.90.8 0.80.6-6.1 1 0.8 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q1 2Q1 3Q1 4Q1 Real GDP (%QoQ SA) Real GDP (%YoY) 4
Risk to growth is tilted to the downside Exports are expected to contract by 2% (in USD term), as opposed to earlier forecast of 0% growth as 1) trading partners, especially Asian partners, are expected % YoY to grow slower than expected 2) structural problems in Thai exports become more 1 distinct 3) a larger than expected fall in commodity prices reduce export prices further. 10 Thus, exports are expected to contract by 2%, vs a.6% contraction in 201. 0 - -10-1 -20-2 -30 Structural problems pose the main threat to exports. Even though other factors are more or less transient, exports structural problems, which will take a long time to fix, will likely dampen demand for Thai exports in the future. For instance, exports to Europe have fallen, as inter-europe trade has increased. Another structural problem is the reduced trade with United States, as the US has started importing more goods from it s neighboring Mexico rather than Thailand. Thus, the structural change in the world trade has led to a dampening effect on Thai exports. Furthermore, domestic factors, such as the failure of Thailand to catch up with advanced technology, has also led to a fall in its exports. For instance, the advancement in technology has led to an increased demand of Solid State Drive, but Thailand mainly exports Hard Disk Drive. As such, structural changes in exports, especially external factors, continue to pose a threat as technological advancement is easier than solving a change in trade linkages. Imports are expected to contract, thus boosting the current account. The forecast for 2016 current account was revised up to USD34.8bn as opposed to an earlier forecast of USD26.3bn. This increase is mainly due to a sharper than expected contraction in imports, rather than an increase in exports. Imports are expected to shrink by 6.1%, as opposed to an earlier thought increase of 0.9%. In the press conference, the BoT spokesperson said the MPC could lower rates further if warranted. We view that large current account surplus and weak domestic demand will keep Thailand s current account surplus afloat, hence, supporting for THB rise. Thailand s embedded current account surplus will make it hard for the BoT to keep the currency competitive. As such, we expect the BoT to cut policy rate by 2bps in Q2/1 to 1.2%. Keeping THB weak will increase THB liquidity for exporter, while increasing Thailand s attractiveness as a travel destination...0 4. 4.0 3. 3.0 2. 2.0 1. 1.0 0. 0.0 Thailand s trade performance Jan-13 Jul-13 Jan-14 Jul-14 Jan-1 Jul-1 Jan-16 % Export Policy Rate Forecast by KBank model 01 02 03 04 0 06 07 08 09 10 11 12 13 14 1 16 17 actual model Import
Thailand s economic momentum in picture 60 0 4 40 3 % YoY Diffusion (Neutral =100) 20 90 1 10 0-3.23.3 Business confidence remained mix in February Diffusion Index (0 = no change from previous month) 1.2 49.2 48.4 48.0 4.4 4.3 46.146.2 Investment Employment Production Production Domestic Foreign Order Cost Order Books Books Dec-1 Jan-16 Feb-16 Consumer confidence dampened in line with spending 12 13 14 1 16 Consumer Confidence (right) Private Consumption (PII) 44.6 43. 8 80 7 70 6 60 30% 2% 20% 1% 10% % 0% % YoY 3 2 1 - -1-2 -3 Chinese tourists buoyed tourism sector, while arrivals from other countries grew more broad-based 4.4 Rubber (2%) China Europe U.S. Japan ASEAN (ex CLMV) Revenue share in 201 Arrivals share in 201 Trade performance received temporary support 19.0 Jewellery Computer (3%) -6.2-4.0-1.9 (7%) IC (4%) Auto (21%) 0.3 Rice (2%) -19.7-19.9 CLMV Jan-16 Feb-16 Rubber (2%) Tapioca (1%) -9.4 Petroleum & Chemical (10%) 6
Key economic & financial indicators Real Sector Unit Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-16 Feb-16 Manufacturing Production Index, % YoY % YoY -1.0-0.1-0.1-0.6 2.6 0. -0.3-0.8 0.3 1.4-3. -1.6 Capacity Utilization Index, non-seasonally adjusted level 70.8 7.9 64.0 64.8 6.3 62.7 64.9 63.8 63.6 62.9 63.8 6.7 Retail Sales % YoY -4.6-3.3-6.0-0.8-1.8-0.3-3.9-0.2 2.9 6.0 #N/A N/A #N/A N/A Car Sales Units 74,117 4,08 6,942 60,322 60,863 61,991 61,869 67,910 76,426 101,426 1,821 7,093 Net Capital Goods Imports USD million 127,071 148,077 133,487 19,072 143,40 160,30 148,688 187,912 166,442 147,136 N/A N/A CPI All Items % YoY -0.7-1.04-1.27-1.07-1.0-1.19-1.07-0.77-0.97-0.8-0.3-0.0 CPI Food % YoY 1.3 0.6 0.1 0. 1.1 1.3 1.3 1.8 0.9 0.8 0.8 1.3 CPI Non Food % YoY (1.) (1.9) (2.0) (1.9) (2.2) (2.) (2.4) (2.1) (2.0) (1.8) (1.3) (1.) Core Price % YoY 1.31 1.02 0.94 0.94 0.94 0.89 0.96 0.9 0.9 0.68 0.9 0.68 Producer Prices % YoY (.0) (.4) (4.8) (3.7) (3.8) (3.8) (3.6) (3.1) (3.1) (2.7) (2.4) (3.0) External Sector Unit Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-16 Feb-16 Foreign Trade Merchandise Exports USD million 18,78 16,744 18,226 17,679 18,113 17,87 18,24 18,288 17,006 16,98 1,60 18,120 Foreign Trade Merchandise Exports % YoY -4.3-1.8 -. -8.9-3.1 -.6 -.4-8.0-6.6-9.1-9.3 6.2 Foreign Trade Merchandise Imports USD million 1,277 1,041 14,066 1,682 1,40 14,680 14,23 13,97 14,920 13,739 12,924 12,142 Foreign Trade Merchandise Imports % YoY -6.4-9.1-20.4 0.3-10.6-10.8-21.3-21.3-8. -8.7-17.8-16.3 BOP Current Account Balance USD million 2,292 1,768 2,796 1, 2,326 2,817 1,723 4,220 2,038 3,924 4,066 7,401 TotalTourist Arrivals persons 2,33,000 2,290,000 2,309,000 2,283,000 2,643,000 2,600,000 2,031,000 2,229,000 2,49,000 2,987,000 3,001,000 3,001,001 Overall Balance of Payments (BOP) USD million 1,096 1,808 116 1,402-1,746-1,187 0 2,441-849 -661 4,44 6,071 Total International Foreign Reserves USD billion 17.4 160.1 18. 160.3 16.9 1.8 1.7 18.3 1.7 17.4 160.1 167.7 International Reserves, Net Forward Position USD billion 19.6 17.9 19.1 18.2 17.6 14.8 13.2 12.1 11.9 11.4 9.2 10.2 Source: The Bank of Thailand, Bloomberg, and KBank 7
Key economic & financial indicators Financial Statistics Unit Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-16 Feb-16 Money Supply M1 THB billion 1,664 1,61 1,69 1,620 1,619 1,636 1,618 1,663 1,696 1,778 1,749 1,70 Money Supply M1 % YoY 1.6 2.3 3.0 2.2 4.4 3.2 3. 6.1.8.7 6. 4.6 Money Supply M2 THB billion 17,17 17,148 17,189 17,101 17,069 17,02 17,078 17,198 17,31 17,1 17,62 17,748 Money Supply M2 % YoY 6.1 6.1 6.4 6.1 6.1..4.4 4.8 4.4 4.0 3.7 Deposits incl B.E. % YoY 10.2 11.2 12.2 13.2 14.2 1.2 16.2 17.2 18.2 18.2 19.2 20.2 Credits % YoY 10.4 11.4 12.4 13.4 14.4 1.4 16.4 17.4 18.4 18.4 19.4 20.4 Financial Statistics Unit Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-16 Feb-16 Mar-16 Policy Rate % 1.7 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Avg Minimum Lending Rate % 6.63 6.63 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 Avg 6 Month Avg Fixed Deposit Rate % 1.29 1.28 1.23 1.23 1.23 1.23 1.23 1.23 1.23 1.23 1.23 1.23 1yr bond yield % 1.77 1.3 1.48 1.49 1.4 1.48 1.1 1.0 1.0 1.0 1.46 1.44 yr bond yield % 2.31 2.12 2.2 2.37 2.22 2.22 2.27 2.2 2.2 2.16 1.92 1.74 10yr bond yield % 2.68 2.1 2.77 2.9 2.82 2.81 2.80 2.66 2.74 2.1 2.36 2.13 USDTHB 32. 33.0 33.7 33.8 3.0 3.8 36.3 3.6 3.9 36.0 3.7 3.6 JPYTHB 27.1 27.7 27.2 27.6 28.3 29.6 30.2 29. 29.2 29.9 29.6 31.6 EURTHB 34.9 36.9 37.0 37.8 38.4 40.2 40.7 39.2 37.9 39.3 38.6 38.9 DXY, US dollar index 98.4 94.6 96.9 9. 97.3 9.8 96.4 96.9 100.2 98.6 99.6 98.2 Source: The Bank of Thailand, Bloomberg, and KBank 8
The Bank of Thailand s new economic forecasts (unit : % YoY or otherwise indicated) Forecast as of June 201 201 2016 (F) 2017 (F) Actual Dec '1 March '16 March'16 GDP 2.8 3. 3.1 3.3 Core inflation 1.1 0.9 0.8 1.1 Headline inflation -0.9 0.8 0.6 2.2 Domestic demand 2.8 3. 2.8 2.9 - Private consumption 2.1 2.8 1.8 2.4 - Private investment -2.0 3.9 2.4 4.0 - Public consumption 2.2 3.4 3.3 2.8 - Public investment 29.8 8.8 10.7 4. Current account ($ bn)* 34.8 26.3 34.8 32.7 - Exports of goods (f.o.b) -.6 0.0-2.0 0.1 - Imports of goods (f.o.b.)* -11.3 0.9-6.1 3.6 Source: Bank of Thailand, * changes according to IMF s BPM6 effective from August 2011 Full Report (Thai) can be found at https://www.bot.or.th/thai/monetarypolicy/monetpolicycomittee/mpr/doclib/mpr_march29_bvs9.pdf 9
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