After rising 2,9% in 2013, during the first quarter of 2014, Thailand's GDP fell by 0,4%, still influenced by the decline in the industrial sector (-2,8%) which was accompanied by the slowdown in the services sector (+1,9% vs 4,2% in the previous quarter). On the demand side, the difficult domestic political situation limited public spending, weighing negatively on consumer and investor confidence, causing a contraction in both private consumption (-3%) and investments (-9,8%). The contribution of the foreign channel was contained by the weakness of foreign demand. Despite this, during the second quarter, growth showed some signs of stabilisation: industrial production e
imports seem to have bottomed out and exports have registered a slight improvement. Inflation, which rose up to 2,3% in June due to the increase in food and energy prices, should limit the rise in the second half of the year thanks to the expected stability of domestic oil prices and the temporary freeze in the prices of some consumer goodsespecially food.
According to what was published by Intesa Sanpaolo Study Centre, the Central Bank is expected to leave the key rate unchanged at 2% this year after the 25bps cut in March, and to proceed with the first hikes around mid-2015 when economic growth will have consolidated .
In the previous coup of 2006, the impact of the political protests that had paralyzed the country was temporary, with the recovery of the growth of consumption and investments, as well as of tourist flows, in the following quarters. The normalization of the political situation should therefore favor the return of trend growth to positive territory in the second half of the year. Forecasts see annual growth between 1,6% and 2,9% in 2014 and between 3,8% and 4,5% in 2013. But, despite the recovery in consumer confidence, the high level of household debt will prevent a sharp acceleration in consumption, while on the investment front, on the one hand favored by low interest rates, the slowdown in credit and the difficulties in approving and implementing investment plans will limit a complete recovery.
External vulnerability indicators are good and direct investments were sustained also in the first quarter of 2014 despite the difficult political situation, testifying to the confidence of foreign investors in the medium-long term economic potential of the country. The Fitch agency raised the rating by one notch in March 2013 to BBB+, thus bringing it into line with the other two major agencies. All three then left their assessment of the local economy unchanged, with a stable outlook, even after the coup. However the coverage of foreign borrowing also heavily depends on short-term loans and, to a lesser extent, portfolio investment. In a still fragile political context, the turnaround in US monetary policy could expose the exchange rate to new volatility during the year.
