Why analysts aren't so happy about Thailand's 0.6% GDP growth

Despite beating market consensus.

According to DBS, Thailand's GDP growth came in at 0.6% YoY in 4Q13 and 2.9% YoY for full-year 2013. Both figures are slightly better than market consensus and managed to prompt some positive reaction in the markets on Monday.

Unfortunately, detailed breakdown of the 4Q GDP data provided little to cheer about. Indeed, the report suggests plenty of risks to our 3.5% GDP growth forecast for 2014. Both private consumption and investment plunged to -4.5% YoY and -13.1% YoY in the period.

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The high base effects from 2012 were partly the reasons. The government’s scheme for first-time car buyers has expired in 4Q12 and it was hardly surprising to see a significant slump in auto sales in 4Q13. More impor- tantly, it was the fall in both consumers’ and investors’ confidence that has led to the sharp decline in overall domestic demand.

There is the risk that domestic confidence, already at 2-year low, would fall further given the current political situation.

About the only positive comes from export growth, which provided a little more boost in 4Q. A slightly better outlook for the global growth means that external demand should continue to pick up. This is good particularly for the manufac- turing sector, which remains highly competitive in the region.

Even on this front though, risks remain. The manufacturing sector has continued to see negative growth in 4Q. Capacity utiliza- tion is still falling and this doesn’t bode well for the economy even if external demand picks up. Confidence needs to be restored in the economy. The NESDB now sees 2014 GDP growth within the 3-4% range, below the 4-5% range projected in Nov13.

The rhetoric from NESDB was clear- ly bearish though. It is well understood that the current political situation plays a very important role. Most private investors are likely to remain on the sidelines until there is more clarity on the political front. Disbursement of public funds is also expected to be below target this year while implementation of approved projects remains uncertain.

Clearly, plenty of risks remain. While sentiment in the local markets has somewhat worsened in Feb, some de- gree of tolerance has prevailed among investors. In the year-to-date, the THB and SET Composite Index remain in the positive territory. It is interesting to see how investors will react if data continues to disappoint going forward.