Flash Notes:Thailand,2014 GDP Grew 0.7%; 2015 Forecast At 4.0%

Thailand’s 2014 GDP grew 0.7%, on par with our full year forecast as well as consensus estimates. This was the weakest economic growth in three years (since the flood in 2011) as a myriad of headwinds from weak external demand to domestic political unrest caused both exports and domestic consumption to grow at a slow pace.

    Nevertheless, today’s release of 4Q 2014 numbers showed signs of improvements. 4Q GDP grew 2.3% y/y (1.7% q/q SAAR), higher than the 2.0% y/y growth consensus estimates, as well as the 0.6% y/y (1.2% q/q SAAR) growth in 3Q. The recovery in economic activity came from a strong push from government expenditure (+5.5% y/y) as Prime Minister Prayuth Chan-Ocha tried to accelerate budget spending to boost domestic demand. In addition, the recovery in investments (+3.2% y/y) as well as steady private consumption demand (+1.9% y/y) provided some upside to 4Q 2014 GDP growth. The uptrend in the on-year growth seen in the Bank of Thailand’s monthly Private Investment Index provided some optimism that private sector investment confidence are slowly coming back on track.

    On the industry front, Thailand’s manufacturing industries contracted 1.1% in 2014 as manufacturing activity fell for the first three quarters of 2014, continuing the contraction since 2Q 2013, as investors pulled back on incremental investments and adopt a wait-and-see approach to the political situation in Thailand. Moreover, weak commodities prices as well as benign global demand weighed on the largest industry of Thailand. However, there as signs of improvement in manufacturing activities as the industry saw the first on-year growth of 0.73% y/y in the last quarter of 2014. We expect the manufacturing industry to improve further with a growth of 5% in 2015.

    With the potential recovery in the manufacturing and trade-related industries, we maintain our 2015 GDP growth forecast of 4%. Also today, the National Economic & Social Development Board maintained its 2015 forecast for expansion at 3.5% to 4.5% while cutting its export growth estimate to 3.5% from 4%. Meanwhile, the Bank of Thailand had kept their 2015 GDP forecast at 4%.

    Although the BoT had maintained its benchmark interest rate at 2% for the eighth straight meeting on 28th January, lower oil prices may provide some impetus for the BoT to adopt a looser monetary stance, particularly since it had switched its price target regime to headline inflation rate (from core inflation rate previously). Latest headline consumer prices in Thailand contracted 0.41% y/y in January, the first decline since the Jan-Sep 2009 global financial crisis. We expect a headline deflationary environment in Thailand in 1H 2015 (averaging -0.4% y/y) and are anticipating a 25bps rate cut during the next BoT monetary decision (11th March).

    With that and increasing probability of a US Fed rate hike by mid-2015, we continue to expect the THB to move lower against the USD towards 34.10/USD by end of 1Q 2015, from around the 32.57 level currently.