Market Research Report
Thailand Country Risk Report Q4 2019
|Published by||Fitch Solutions, Inc.||Product code||203091|
|Published||Content info||63 Pages
Delivery time: 1-2 business days
|Thailand Country Risk Report Q4 2019|
|Published: August 21, 2019||Content info: 63 Pages||
At Fitch Solutions, we are revising down our 2019 real GDP forecast to 3.0% from 3.5% previously. Re-escalating US-China trade tensions and high inventory stock are the main downside factors likely to weigh on growth over the coming quarters. We expect the slowdown to be cushioned by favourable base effects and monetary easing, while the formation of a new government over the coming weeks will likely see supportive fiscal policies being adopted. A significant delay to government formation and further escalation in US-China trade tensions are the main downside risks to our forecast.
We still expect the Bank of Thailand to cut its policy interest rate by 25bps by the end of 2019. The central bank's tone remains dovish, and is now further worried by the impact of what it deems as strong currency appreciation on the external sector. Our view remains supported by two key factors; slowing growth prospects and inflation which is likely to underperform the central bank's mid-point target of 2.5%. The long delay in government formation is likely to lead to a delay in passing the next fiscal budget, worsening the situation.
Thailand's new government is gearing up to implement the populist promises in its manifesto, including income tax cuts and the extension of subsidies for public transport, fuels, and necessities. However, with specified details yet to be finalised at the time of writing, we at Fitch Solutions maintain our fiscal deficit forecast for 2019 at 1.9% of GDP and that for 2020 at 1.8% of GDP. We believe that farmers, in particular, may require yet more subsidies amid headwinds from drought and a strong baht.
We maintain our 2019 average forecast for the baht at THB32.00/USD, expecting the BoT to limit baht strength over the coming months to shore up the country's external sector. We also maintain our 2020 average forecast for the unit, which stands at THB31.25/USD, with the current account and more stable political environment likely to prove constructive for the unit over the coming quarters. However, uncertainty regarding the ability of the new government to maintain unity and govern effectively remains a key downside risk.
The new government of Thailand is a coalition government consisting of 19 parties. The unity of the government will be a challenge to maintain, and major issues such as the upcoming bid by the Democrat Party to revise the 2017 Constitution, could result in paralysis or even dissolution of the government. Thailand's tourism boom has been largely driven by rapid growth in mainland Chinese arrivals, which could slow sharply should the Chinese economy undergo a slowdown.