Thailand GDP growth forecast slips to 5%

The good news is that it still reflects confidence in domestic economy's performance.

According to DBS, its 2013 GDP growth forecast has been reduced to 5%, while the projection for this year is maintained at 5.5%. Notably, the 5% GDP forecast for next year is still significantly above consensus (4.5%) and reflects confidence that the domestic economy will continue to perform.

Here's more from DBS:

The authorities still have a pro-growth bias and we do not expect this to change just yet. The incremental rollout of the increase in minimum wages across the country (starting with seven provinces in and around Bangkok in April this year) as well as the extension of the rice pledging scheme (a guaranteed price for rice crops) to cover the crops for FY2013 (Oct-Sep).

Coupled with wage increases for civil servants and rebates for first-car buyers, private consumption will be very well supported in the coming quarters.

Private investment has rebounded sharply since the trough in December last year with imports of capital goods increasing significantly. The overall private investment index has also stayed at elevated levels over the last few months. This momentum looks likely to spill over into 3Q amid continued post-flood reconstruction.

Public investment also looks set to surge in the coming quarters. To fund water-related infrastructure projects and improve flood management, the government plans to spend THB 300bn. However, this is not a story for the immediate term as the bulk of the expenditures are expected to kick in only in 2013 and 2014.

On the external front, we have become less sanguine. The post-flood pent up demand is unlikely to persist and export weakness should become more apparent. Moreover, competitiveness could become more of an issue following an extension of minimum wages early next year. The more conservative GDP forecast for 2013 is a reflection of these concerns amid continued lackluster growth in the global economy.