Growth expected for Thailand in fourth quarter

A recovery in sentiment is probable in this period, says DBS.

DBS Group Research noted:

The Bank of Thailand (BoT) left rates unchanged at 3.00% yesterday as widely expected but the decision was not unanimous. The BoT also lowered its GDP growth forecast for 2012 to 5.7% from 6% (DBSf: 5.5%) and for 2013 to 5% from 5.4% (DBSf: 5.5%).

Inflation forecast for 2012 was also lowered to 2.9% from 3.3%. As expected, the central bank noted that interest rates are at an appropriate level to support growth and that domestic demand growth remains strong and even close to potential. It also expects the current level of rates to cushion the economy against global growth risks.

Meanwhile, exports (Jun) fell by 2.5% (YoY), within our expectations as flagged in this space on Friday, but much lower than market forecast of 4.3%. In sequential terms, exports fell by 5% (MoM, sa). Imports fell even more sharply, in part due to the drop in commodity prices, and partly due to a normalization in investment expenditure.

Private investment has run way above trend in the first half as businesses replace machinery damaged during the floods. It is likely that investment and GDP normalize in the second half. Downside growth risks are growing by the day. The uncertainties on the global growth front and the heightened risk of a Eurozone break-up are likely to affect exports and third quarter growth.

However, given the strong expansion in GDP in the first half of the year (1Q: 44% QoQ, saar and 2Qe: 10+%) and given that it is still more likely than not that Eurozone policymakers act to prevent a meltdown, a recovery in sentiment and growth is probable in the fourth quarter. This is the base case for now and until there is reason to change this view, the BoT too is unlikely to lower interest rates.