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Thailand Business Forecast Report Q3 2008

Published by: Business Monitor International

Published: Jun. 2, 2008 - 62 Pages


Table of Contents


Executive Summary
New Administration: Innocent Until Proven Otherwise?
Chapter: Political Outlook
SWOT analysis
BMI Political Risk Ratings
Domestic Politics
Constitutional Kerfuffle To Fizzle Out?
Tensions surrounding the governing coalition’s mooted plans to amend t constitution are still brewing,
but there are some indications that the incumbents may be backpedaling, out of concerns over the possible fallout
should they forge ahead with the changes.
Table: Thailand Political Overview
Chapter: Economic Outlook
SWOT analysis
BMI Economic Risk Ratings
Economic activity
domestic demand To Cushion External Slowdown?
We maintain our broadly sanguine outlook on the Thai economy in view of the return to democratic rule,
pro-market policies and a fairly buoyant momentum in domestic demand.
Table: Economic activity
Exchange Rate Policy
Baht Still Has Room For Appreciation
We believe that the Thai baht can continue to appreciate against the US dollar , thanks to improved
political conditions, positive macroeconomic fundamentals, and strong investment.
Table: Exchange Rate Policy
Monetary Policy
BoT: Playing The Waiting Game
We are expecting the Bank of Thailand to maintain is current neutral stance with regards to interest rates over
the remainder as it continues to weigh downside risks to growth with upside risks to inflation.
Table: Monetary Policy
Balance Of Payments
Rampant imports drag On Current account
While exports continue to hold up well, despite recessionary headwinds in the US and a stronger baht,
Thailand’s current account surplus will be whittled away as soaring oil and commodity prices push
import growth t%.
Table: Balance of Payments
Chapter: Special Report
Business Outlook For Global Frontier Markets
Growing Fast On The New Frontier
Th states that BMI examines in a new report on our online service may make up only a small slice of the world
economy, but they possess characteristics that will see them gain importance in the eyes of investors and global
businesses over the coming years.
Frontier Investment
Potential and Pitfalls
The spectacular macroeconomic performance of frontier markets in recent years has been matched by mildly
successful efforts to deepen capital markets.
Table: Frontier Markets - Key Data And Projections For To Countries
Table: GDP Per Capita, US$ (in Order Of % increase)
Table: Diversity Through Frontier Markets - Correlation Coefficients Janua-Apr
Table: Frontier Market Indices
Regional Overview
Laos
Neighbouring Economies The Key To Growth
Laos’s GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for its
natural resources.
Yemen
huge Potential, But don’t Bank On GCC Membership
Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
development, with the prospect of eventual GCC membership likely to act a key investment pull.
Table: Yemen Economic activity
Democratic Republic Of The Congo
Mining industry To drive Growth
The Democratic Republic of the Congo’s mining industry will be a key driver of growth and is likely to attract
significant levels of FDI, with our real GDP forecasts standing at% and% a, respectively.
Table: Democratic Republic Of The Congo - Economic Activity
Cuba
Investment Prospects After Fidel
The accession of a new leadership structure in Cuba has sparked excitement that th-year-old trade embargo
with the US may be lifted and Cuba may move toward market liberalisation.
Table: Cuba Macroeconomic Data And Forecasts
Mongolia
Minerals To drive Economic Boom
Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
digits and underpin robust increases in exports and inflows of foreign investment capital over the long term.
Table: Mongolia - Economic Activity
Chapter: Business Environment
SWOT analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Table: BMI Business and Operational Risk Ratings
Institutions
Table: BMI Legal Framework Ratings
Infrastructure
Market Orientation
Table: Labour Force Quality
Table: Asia, FDI Inflows
Table: BMI Trade Ratings
Table: Top Export destinations (US$mn)
Operational Risk
Chapter: Key Sectors
Commercial Banking
Table: Annual Growth Rate Projectio2 (%)
Food & Drink
Table: Food Category Sales Indicators - Historical Data & Forecasts


Abstract

New Administration: Innocent Until Proven Otherwise?

We maintain a broadly sanguine outlook on the economy and the Thai political scene as we moveinto the second half of 008, although there are lingering risks on both fronts. The return to ademocratic government bodes well for a normalisation of policymaking, and the pro-market ethosof the new administration will be welcomed by the business community. Meanwhile, the fledglingadministration, under Prime Minister Samak Sundaravej, has, among other things, promised afiscal stimulus package and reforms to the country’s tax regime and investment laws. However,the fate of the ruling six-party coalition, dominated by the People’s Power Party (a reincarnationof former premier Thaksin Shinawatra’s Thai Rak Thai party) is by no means certain as they areunder investigation by the country’s Election Commission for alleged malpractices in relation to lastyear’s ballot. If found to have circumvented the country’s electoral laws they risk being dissolved- something which could potentially trigger yet another round of elections (and by extension anotherspell of political uncertainty).

The freshly elected government is likely to remain in a mild state of suspense over the comingmonths, amid nervousness that the country’s Election Commission could unearth damaging detailsrelating to last year’s elections. Indeed, the governing parties’ controversial plan to amendthe 2007 constitution has been interpreted as an attempt to insulate itself from potential flak, andeven potential dissolution. As we go to print, the charter amendments are still to be deliberated inparliament and it appears as though the opposition’s demand for a referendum over the matter willnot be met. Clearly, Prime Minister Samak Sundaravej faces some difficult choices, as pressingahead adamantly with the constitutional changes could reignite the ire of the public and military.The Thai economy kicked off 2008 on a robust note, with first quarter real GDP growth ticking upto 6.0%, from an already healthy .7% in Q 07. The return to civilian rule and fairly accommodativefiscal and monetary policy has no doubt helped rejuvenate consumer and business optimism.

However, parallel with the rebound in sentiment, the inflationary gauge has also been registeringsome potentially worrisome pressures of late. High food and oil prices have pushed consumer priceinflation back north of the 6.0% mark, last visited in 2006. The corollary of this is that the Bank ofthailand has been forced to halt its easing cycle, keeping the one-day repo rate on hold at . %at its May 1 meeting. Unless price growth metrics subside in the coming months there is a riskof a resumption of monetary tightening, something which could put a spanner in the works of thegovernment’s pro-growth policy programme.

The government’s mooted five-year tax restructuring programme and changes to investment lawsaugur well for the business environment in H208 and could help bolster Thailand’s relative standingin BMI’s Business Environment Ratings. The Sundaravej administration is planning sizeable infrastructuralprojects which should help lift sectors such as construction and real estate. Moreover, theproposed fiscal stimulus package includes possible tax breaks for individuals and small-to-mediumscaleenterprises. A key short-to-medium term threat is the uptick in inflation and the continued appreciationof the baht, both of which pose palpable risks to investment plans and margins ahead.


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