Cooling Domestic Demand Presents Downside Risks To 2014 Growth

BMI View: The latest real GDP growth reading came in disappointingly weak at a seasonally-adjusted 1.3% quarter-on-quarter (q-o-q) in Q313. Crucially, the latest figures suggest that cooling external demand is beginning to impact household spending and business investment. We caution that political tensions could also further dampen investor sentiment and economic activity as we head into 2014. Subsequently, we have downgraded our 2013 real GDP growth forecast from 4.0% to 3.6%, and we expect growth to remain subdued at 4.3% in 2014.

Thailand's real GDP growth print came in disappointingly weak at just 2.7% year-on-year (y-o-y) in Q313, missing the Bloomberg consensus estimate of 2.9%. On a seasonally-adjusted basis, the economy expanded by 1.3% quarter-on-quarter (q-o-q) in Q313, up from a revised flat growth figure in the previous quarter. Although the latest reading remains generally consistent with our view that cooling external demand will continue to weigh on headline growth over the coming quarters, we are beginning to see more evidence of weakness in other areas of the economy.

Businesses And Households Cut Back On Spending

Contraction In Private Sector Investment A Warning Sign For Economy
Thailand - Contribution to Real GDP Growth by Expenditure (pp)

Cooling Domestic Demand Presents Downside Risks To 2014 Growth

BMI View: The latest real GDP growth reading came in disappointingly weak at a seasonally-adjusted 1.3% quarter-on-quarter (q-o-q) in Q313. Crucially, the latest figures suggest that cooling external demand is beginning to impact household spending and business investment. We caution that political tensions could also further dampen investor sentiment and economic activity as we head into 2014. Subsequently, we have downgraded our 2013 real GDP growth forecast from 4.0% to 3.6%, and we expect growth to remain subdued at 4.3% in 2014.

Thailand's real GDP growth print came in disappointingly weak at just 2.7% year-on-year (y-o-y) in Q313, missing the Bloomberg consensus estimate of 2.9%. On a seasonally-adjusted basis, the economy expanded by 1.3% quarter-on-quarter (q-o-q) in Q313, up from a revised flat growth figure in the previous quarter. Although the latest reading remains generally consistent with our view that cooling external demand will continue to weigh on headline growth over the coming quarters, we are beginning to see more evidence of weakness in other areas of the economy.

Contraction In Private Sector Investment A Warning Sign For Economy
Thailand - Contribution to Real GDP Growth by Expenditure (pp)

Businesses And Households Cut Back On Spending

As the accompanying chart shows, gross fixed capital formation (GFCF) and private consumption registered negative contributions of 0.6 and 1.6 percentage points (pp), respectively. The contraction in private consumption and private sector investment - which suggests to us that weaknesses in the export sector are beginning to spill over into household spending and business investment - has presented significant downside risks to our outlook for the economy over the coming quarters. We note the recent flare-up in political tensions as a result of the ruling Puea Thai Party's foiled attempt to pass a blanket amnesty law (the bill was eventually blocked by the Senate), could further act as a dampener on economic growth in the final quarter ( see 'Amnesty Law Risks Reigniting Political Turmoil', November 6 2013).

Another Difficult Year For The Manufacturing Sector
Thailand - Manufacturing Production Index S.A (LHS), % chg m-o-m (RHS)

No Signs Of Rebound In External Demand

Trade figures continued to show no signs of a rebound in demand for merchandise exports while imports have begun to cool, reflecting our view that domestic demand will remain highly vulnerable to a sustained decline in manufacturing sector activity. Looking ahead into 2014, we reiterate our view that cooling external demand (mainly driven by a China-led economic slowdown in the region in 2014), will continue to weigh on household spending and private sector investment.

We also expect the cyclical decline in credit growth - total outstanding loans growth in the banking sector has fallen from 15.3% year-on-year (y-o-y) in July to 10.5% in August - to act as a major dampener on economic growth in H114 ( see 'Economic Weakness To Persist Into 2014', November 7 2013). In light of the weakness we have seen across the key economic indicators in recent weeks, we see real GDP growth remaining subdued at 4.3% in 2014 (compared to Bloomberg consensus at 4.5%).

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