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Thailand: UBS sees GDP growth of 4.5% in next 2 years

December 5, 2012 The Nation
Gross domestic product is expected to expand by 4.5 per cent next year and in 2014, says UBS Investment Research, which also forecasts that the policy rate will rise to 3.5 per cent by the end of 2013.
Thailand's economy is expected to improve from a soft patch late this year, Edward Teather, a senior economist at UBS Securities Asia, said yesterday during a teleconference from Singapore.

The economy this year has been somewhat characterised by a moderation of post-flood catch-up spending and export weakness, Teather said.

An export recovery plus loose fiscal and monetary policy will support GDP growth in 2013, he said, with exports growing by 7 per cent compared with estimated 3.8-per-cent growth this year.

"We forecast a [GDP growth] trend [around] 4.5 per cent in both 2013 and 2014, which is quite good given a still-difficult global environment," he said.

UBS forecast that the Bank of Thailand would raise the policy rate to 3.5 per cent by the end of next year from 2.75 per cent currently.

Although the central bank is mandated to target core inflation, it has often made clear a preference for positive real interest rates with reference to headline inflation.

"Our assumption of 3.5-per-cent inflation in 2013 implies an uncomfortable negative real interest rate at the short end of the yield curve if policy is left unchanged," Teather said.

The rise in the minimum wage will add to the case for hawkishness on the part of the BOT, he said.

Consumer-price inflation, which was 3.3 per cent in October year on year, will likely not slow much in 2013. UBS expects oil and food prices will rise to accompany the turn in the global trade cycle.

Since Thailand is a net oil importer, it will be under pressure from commodity-price inflation, he said.

However, the nationwide rise in the minimum wage next month will not push inflation substantially higher, he said.

The impact will likely be more keenly felt on margins where minimum wages are paid in the formal sector, while price impulses are limited by competition from the non-formal sector and imports.

Investment will contribute to growth as the government plans to borrow Bt340 billion to finance water-management projects and to run a fiscal deficit of Bt300 billion.

He forecast that corporates would take advantage of the infrastructure-fund financing vehicle introduced by the government to improve the capacity of corporate balance sheets to fund growth.

Elsewhere in the Asian region, economic growth should improve a bit next year and some of the binary risks overhanging 2012 should fade.

"We think growth for Asia excluding Japan will improve modestly to 6.2 per cent in 2013 versus an estimated 5.6 per cent this year," he said.

Among Asean members, real GDP growth in Indonesia is expected to be 6 per cent next year, and 4.5 per cent in both Malaysia and the Philippines.

Meanwhile, Bloomberg reported that Nomura Asset Management Co was holding more baht than the benchmark it uses to track performance this year because of the Thai currency's low volatility and outlook for appreciation.

A measure of expected exchange-rate movements used in pricing options was at 3.9 per cent for the baht, compared with 4.7 per cent for the Indonesian rupiah and 4.4 per cent for the Philippine peso.

The measure for Thailand has dropped from the year's high of 7.93 per cent in January, according to data compiled by Bloomberg.
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