Thailand GDP to jump to 5.5%

Thanks to robust domestic demand and effective expansionary policies.

According to Nomura, Thailand's 2012 GDP growth forecast of 5.5% from 0.1% in 2011, driven by domestic demand. The government has recently raised its forecast to 5.7% while the BOT now forecasts an even higher 6.0%. 

Here's more from Nomura:

Regardless, it is important to recognize that domestic demand will likely remain robust, which is not usually the case when Thailand faces a very uncertain external environment, as it does today. This demonstrates the effectiveness of highly expansionary policies, which we expect to persist. In fact, we believe there is space to accelerate expansionary policies, both by fiscal and monetary authorities, should the global economy weaken sharply.

For 2013, we expect GDP growth to remain healthy at 4.7% but risks appear to be skewed to the upside. The Ministry of Finance (MOF) recently announced THB2.27trn of infrastructure projects over the next few years, and we expect this to be funded by a non-budgetary bill to borrow THB1.6-2.0trn. This additional borrowing, if implemented accordingly, poses an upside risk to our 2013 forecast and beyond.

The risk of a „hollowing out‟ of key sectors appears limited. Thus far, the FTI has noticed that some firms are planning to relocate plants to other areas but remain in Thailand, rather than relocating outside the country. According to the Board of Investments (BOI), investment applications have continued to rise and we believe this is partly the result of a wide range of tax incentives which include (a) import duty exemptions to replace machinery and equipment; (b) regular investment promotion packages to new projects; and (c) special investment promotion packages to BOI-promoted companies directly affected by the floods, in addition to tax holidays that still may be in effect.