News Room - Business/Economics

Posted on 11 Jan 2008

Macquarie predicts growth of 5.7% in Thailand

The Thai economy could grow by 5.7% this year and jump to 6.5% in 2009 thanks to a turnaround in private investment and consumption, according to Daniel McCormack, strategist for regional equity markets for Macquarie Securities Asia.

The forecast is significantly more upbeat than those of many other research houses, with consensus estimates putting 2008 growth at around 5%.

But Mr McCormack said the Bank of Thailand's steady interest rate decreases in 2007 would play a key role for the recovery of the domestic economy this year.

''Politics is not the major issue for the economy this year. Monetary and economic issues will matter more. The interest rate has come down and will be stimulative for the economy this year,'' he told the Bangkok Post.

The latest economic indicators, including private investment, consumption, manufacturing, credit growth and money supply, all showed that the Thai economy had ''turned the corner'', Mr McCormack said.

A more stable political environment following the Dec 23 elections would also help boost confidence this year, he added.

''Domestic demand will be the key economic driving engine in 2008. There are clear and tangible signs of recovery,'' Mr McCormack said.

He said Macquarie's estimates did not factor in the possibility of a new mid-term supplementary budget from the new government.

Fiscal spending was not expected to be a critical contributor to growth this year.

''There are uncertainties surrounding [fiscal spending] and it would take a while for implementation and the impact to be shown. So the monetary factor will contribute more,'' Mr McCormack said.

Thai exports were likely to slow from the torrid 17% growth posted in 2007, he said, but not significantly as Thailand and Asian manufacturers have diversified their markets away from the US.

''Exports will decelerate in the second quarter as the effect of the US slowdown starts to take hold. But [a rebound in] domestic consumption and private investment would trump that,'' Mr McCormack said, adding that exports were expected to rebound and add to growth momentum in 2009.

''Thailand's domestic demand is on an upward trend. The region's exports will also be an upward trend and add to the economic growth momentum in 2009,'' he said.

The Bank of Thailand, meanwhile, was expected to increase its one-day repurchase interest rate by 25 basis points in the fourth quarter of the year from 3.25% now, with rate increases continuing through 2009.

Mr McCormack said rising interest rates were not expected to have a major impact on growth.

''It doesn't matter whether [the central bank] changes the interest rate. The interest rate will remain low and important to the economy. The central bank's tightening at the end of 2008 and in 2009 will reflect a stronger economic outlook than many had thought,'' he said.

Oil prices, which this month touched the $100-per-barrel mark, would have a marginal impact on consumption. Prices were expected to fall to $70 to $75 per barrel by the end of the year, thanks to slower demand from the US.

''People have consistently overestimated the impacts of oil prices on consumer spending for the whole global cycle,'' Mr McCormack said.

The Thai stock market, which has lost 6.75% since the beginning of the year due to heavy foreign selling, would also rebound by the middle of the year as inflows return on low valuations.

''Thailand is one among the few in the region whose economy is expected to pick up this year. It is a very defensive market. During times of uncertainty, many investors will be looking at Thailand as a safe haven,'' Mr McCormack said.

The baht, meanwhile, should see greater stability in 2008, thanks to a projected rebound in the dollar in the second half.