Population 64.46 million
GDP 376.989 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
7.8 |
0.1 |
5.5 |
5 |
|
Inflation (yearly average) (%)
|
3.3 |
3.8 |
3.1 |
3.5 |
|
Budget balance (% GDP)
|
-2 |
-1.8 |
-4.5 |
-4.3 |
|
Current account balance (% GDP)
|
3.1 |
1.7 |
0.6 |
-0.4 |
|
Public debt (% GDP)
|
42.6 |
41.7 |
44.7 |
44.4 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Diversified and high-performance production in agriculture and industry
- Move up-market in manufactured products
- Regional hub opens to its dynamic neighbours
- Strengthened banking system
WEAKNESSES
- Thai foreign trade subject to China’s competition
- Inadequate structural reform
- Business climate marked by persistent links between the private sector and political circles
- Recurrent political instability since 2006
Risk assessment
Growth expected to slow slightly in 2013
After the disruption of production lines due to the tsunami in Japan and the floods, growth recovered in 2012 thanks to spending on reconstruction and accommodative economic policies. Wage hikes, cuts in corporation tax, the implementation of a programme for purchasing rice at above-market prices, loans at preferential rates to households and businesses affected by the floods and investments in infrastructures aimed particularly at better protection for the regions affected by flooding have been put in place.
Growth is expected to slow slightly in 2013. Household consumption will be the main growth driver thanks to wage hikes, while investment will be very dynamic fuelled by construction, high production capacity utilisation and credit growth. Monetary policy is expected to remain accommodating after a 25-point fall in the key rate in October 2012. Exports, however, are expected to remain sluggish in a context of the eurozone recession and weak growth in the United States. On the supply side, the iron and steel sectors are likely to again benefit from spending on reconstruction. Moreover tourism from Asia (particularly from China) will remain buoyant. In addition the raw materials sector (palm oil, rice, rubber and cane sugar) is expected to benefit from better weather conditions. However, exporting sectors such as electronics and textiles are expected to continue to suffer from sluggish external demand.
A strong financial position
After widening in 2012, the fiscal deficit is expected to remain stable in 2013. Despite the abolition of scrapping premiums in the automobile sector, public spending will continue to support activity: investment in infrastructures, salary rises, support programme for the price of rice, etc. Despite these measures, public debt is expected to remain sustainable. Therefore Thailand’s sovereign default risk still looks likely to be contained.
The current account balance will go slightly into deficit in 2013 due to weak exports. However, foreign direct investment is expected to grow strongly, as Thailand is still an attractive production base for the car and electronics industries (particularly Japanese brands like Honda, Nikon, Sony, Western Digital). These stable capital flows should cover most financing needs. Meanwhile, the central bank has sought to encourage foreign investment by residents since 2012: the external assets of the Thai private sector could increase and reach the regional average of 30% of GDP against 15% of GDP currently. In this context upward pressures on the baht could ease. Moreover, the comfortable level of foreign exchange reserves (7 months of imports) gives the country a satisfactory degree of resistance in the event of sudden capital flight. In addition, despite persistent shortcomings in terms of supervision, the banking sector has become stronger in recent years: reduction of non-performing loans, improvement of solvency and profitability ratios.
Persistent internal divisions
Politically, the July 2011 early elections were marked by the victory of the Puea Thai supported by the rural population (2/3 of the population). Prime Minister Yingluck Shinawatra, sister of Thaksin Shinawatra, however, continues to face a deeply divided society and her populist measures (higher minimum wage, support for households) have been sharply criticised by the Democratic Party as unsustainable and affecting business competitiveness. In November 2012, the Democratic Party demanded a confidence vote, criticising management of the floods and the programme of buying rice at above market price, and organised a big demonstration. So internal political divisions between Thaksin supporters and those of the Democratic Party are expected to remain sharp and could intensify as the succession to King Rama IX (aged over 80 and in poor health) approaches. A respected figure of moral authority, he stands for stability and the continuity of the country’s political life. The uncertainties surrounding the succession could further exacerbate internal tensions, Finally, the Puea Thai’s wish to modify the constitution to allow Thaksin’s return could revive the tensions.
