Tuesday, February 11, 2014

Thailand Growth in Peril

There is still no end in sight for Thailand’s prolonged political deadlock and consumer confidence has again slid as a result. It is now at its lowest point since end-2011. An¬other contraction in private consumption is almost certain for the December quarter, which is clearly a down¬side risk to our 2013 GDP growth forecast of 3.2% on-year.
Sentiment in the local bourse seems to have worsened. While the external risk aversion might have played some part, net foreign sell¬ing in equities has reached US$400 million in the first week of February alone, equalling the total amount seen in the whole of January. While there was at least some hope last month that the February 2 election would solve the crisis, no one knows for how longer the political deadlock will continue.

Things could get even worse. There is a risk that the Bank of Thailand (BOT) may be forced to do more than it has done. If data continue to surprise to the downside, there could be mounting pressure on the BOT to act. It is no secret that the BOT is more concerned about domestic leverage than anything else. The central bank recently indicated that the household debt to GDP ratio may con¬tinue to rise. As of the September quarter, household debt to GDP is at a record-high 80.1%. And a rate cut is unlikely to boost GDP growth as long as the political crisis remains unresolved.