4Q09 GDP Up 5.8%: Strong Fundamentals, 6% Expected in 1Q10 (Business Brief No.2767)

• The higher growth in economic indicators reflect that Thai economic fundamentals are healthier and more resilient than expected, despite the global crisis and domestic political strife in 2009. Overall, the Thai economy in 2009 contracted only 2.3 percent, faring better than a previous forecast in early 2009 that the economy might have suffered a severe contraction. The improving trend will likely continue to drive economic growth over the foreseeable future.
• KResearch therefore forecasts that even though the Thai economy in 1Q10 may record slower growth QoQ, SA, the over-year growth may reach 6 percent or more, thanks to higher than expected GDP performance and comparison with the low base of 1Q09, wherein the GDP shrank around 7.1 percent YoY. Improving economic fundamentals should pave the way for healthier growth in subsequent quarters. Given this, Thai economic growth may achieve a range of 3.5-4.5 percent – consistent with the NESDB projection that has recently been revised upward – provided that there is no further political upheaval at home.
• With the release of more positive economic indicators, Thai policymakers have become more confident about the economic turnaround. Nonetheless, the Thai economy may remain at risk, especially amid a fluid domestic political situation. KResearch thus expects that the Thai authorities may, over the short-term, continue to maintain economic policies that help to sustain the economic recovery, while keeping an eye on domestic political situation and Thai economic indicators. If the economic data to be released at the end of May still shows healthy growth, policymakers may begin to adopt an ‘exit strategy' from their stimulus measures.

As for the impact of domestic politics on the Thai economy, much will depend on the degree of public violence. If there are flare-ups, economic growth may be impeded via battered tourism, investment and consumer spending, as well as budgetary disbursements. In the worst-case scenario, GDP growth may lose more than 1.0 percent. Close attention should be paid to the Chinese economic outlook in light of their implementation of credit control measures, the US economic revival and the Fed's monetary policy initiatives that may affect global interest rates and foreign exchange, plus resolution of Euro-zone debt crises, domestic inflation and progress toward relieving the Map Ta Phut impasse.