Improved tourism sector to support Thailand economy

But merchandise exports could offset growth.

It has been assessed that looking ahead, Thailand’s economy should receive some support from continued improvement in tourism sector, accelerated disbursement of public spending and recent fiscal stimulus measures.

According to a research note from UOB, nevertheless, this is likely to be offset by the persistently weak performance of merchandise exports.

As such, it maintains its 2016 GDP growth forecast of 3.2%, which is slightly below NESDB’s 3.3% growth projection.

Thailand’s overall economic activity in 4Q15 continued to recover at a gradual pace. In line with our expectations, the 4Q15 GDP growth rose to 2.8% y/y versus 2.9% in the previous quarter, bringing full-year 2015 GDP growth to 2.8% from 0.8% in 2014.

Here’s more from UOB:

In seasonally adjusted terms, 4Q15 GDP grew by 0.8%. The main drivers were the tourism sector and accelerated public investment especially in transportation, irrigation and small-scale investment projects.

Domestic demand gradually recovered supported by improved consumer and business confidence, persistent decline in energy prices, and partly benefited from additional stimulus measures. Meanwhile, the exports of goods and services dropped by 3.5% mainly owing to structural impediments in Thai manufacturing sector and the slowdown of the global economy.

In terms of monetary policy implications, we expect the Bank of Thailand to keep the policy rate unchanged at 1.50% in its 23 March meeting since monetary policy is still conducive to the economic recovery and should give due weight to maintaining financial market stability, as volatility in the financial markets could potentially rise due to monetary policy divergence among advanced economies.

Further reduction in the policy rate is likely to have a marginal effect on the economic recovery. As a consequence, the policy space should be preserved for future utilisation as there remain risks to financial stability and downside risks to economic expansion, particularly those stemming from uncertainty in the world financial markets and a slowing global economy. For now, we maintain our end-1Q16 USD/THB forecast of 36.20.