The Thai military's extended stay in power until at least 2017 following the rejection of the draft constitution will allow for an acceleration of its efforts to remove former premier Thaksin Shinawatra (2001-2006) and his allies from domestic politics, risking a further deepening of the political divide in the country and a rapid regression towards Myanmar-style authoritarianism.
Government efforts to shore up the Thai economy and weak crude oil prices should help to support the ongoing economic recovery. That said, export headwinds will act as a drag. As such, we forecast Thailand's real GDP growth to come in at 3.3% in 2016, marking only a marginal increase from a forecasted 3.2% in 2015.
While the Thai government will increase spending in 2016 to accelerate the ongoing economic recovery, gradually improving economic conditions will bode well for fiscal revenue. Consequently, we forecast Thailand's fiscal deficit to come in at 2.1% of GDP in 2016, unchanged from a forecasted 2.1% in 2015. Public debt will remain manageable, while the issuance of longer term bonds in 2016 will likely result in a steepening of the yield curve.
With new Thai central bank governor Veerathai Santiprabhob signalling that fiscal measures will take the lead in sustaining the ongoing economic recovery, we expect monetary policy to take a back seat, and are forecasting the Bank of Thailand (BoT) to keep its benchmark interest rate on hold at 1.50% over the course of 2016. That said, the central bank technically has room to ease monetary policy further should the economic picture worsen, given that inflation is likely to remain relatively muted.
While external headwinds pose a threat to the Thai baht, improving valuations, a large current account surplus, positive real rates, and strong international reserves should provide fundamental support to the currency. As such, we are neutral towards the Thai baht, and are forecasting the unit to average USD36.50/USD in 2016, unchanged from our forecasted USD36.50/USD in 2015. Beyond 2016, we also expect the Thai baht to strengthen gradually towards THB34.11/USD by 2024.
Major Forecast Changes
We downgraded our 2016 and 2017 real GDP growth forecast to 3.3% and 3.5%, respectively, from 4.1% previously.
We revised higher Thailand's fiscal deficit as a share of GDP from 1.7% to 2.1% in 2016.
We revised lower our 2016 average inflation forecast to 1.5%, from 2.5% previously.
We forecast the Thai baht to average THB36.50/USD in 2016, from THB36.72/USD previously.
Key Risk To Outlook
A key downside risk could come from renewed political instability. The military has been successful in quelling protest activity since it assumed power, but any attempt to install a civilian government against the wishes of the 'Red Shirts' could result in a backlash.
|Real GDP growth, % y-o-y||2.8||0.9||3.2||3.3|
|Nominal GDP, USDbn||420.2||404.9||390.6||387.3|
|Consumer price inflation, % y-o-y, eop||1.7||0.6||-0.7||2.5|
|Exchange rate THB/USD, eop||32.71||32.91||36.50||36.50|
|Budget balance, % of GDP||-2.2||-2.0||-2.1||-2.1|
|Current account balance, % of GDP||-0.6||3.5||4.2||4.5|
Assess your risk exposure in Thailand with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Thailand with confidence.
Your subscription service includes:
- Delivery of the report in print, PDF and online formats
- The functionality to translate your online report into your choice of 10 languages - Arabic, Chinese, French, German, Italian, Japanese, Korean, Portuguese, Russian and Spanish
- The ability to export data and graphs from the online report directly into your workflow
- The support of a dedicated Account Manager to answer any questions you might have about your subscription
- Access to our team of leading analysts who will be happy to answer any questions you might have about the data and forecasts included in this report