Feb. 21, 2011 -
PRLog -- Elections In 2011 To Shape Political Outlook In spite of the political turmoil, Thailand's real GDP growth came in at a better-than-
expected 9.1% y-o-y in Q210. Private consumption and net exports were the key drivers of growth, with the manufacturing sector outperforming the rest. In light of an improving political situation in Thailand and resilient domestic demand, we have revised our real GDP growth forecasts from 3.6% to 7.5% in 2010. Going into 2011, we are sticking to our view of a slowdown in external demand and a narrowing trade surplus of 3.7% of GDP next year, compared to 4.5% of GDP in 2010. As such, we are maintaining our below consensus real GDP growth forecast of 3.6% for 2011. Although we see political stability in the near term, we note that general elections in 2011 will determine how the political situation will unfold going forward. Government efforts to clamp down on hardcore anti-government groups responsible for inciting violence in Thailand have achieved considerable success in recent months. We believe the government's aggressive stance could help to deter further attacks in the future. This will in turn help to support the government's plan to remove the emergency rule in the remaining provinces in the coming months. On the basis that Thailand continues to stabilise, we believe that the emergency rule will be fully lifted by early 2011, paving the way for Prime Minister Abhisit Vejjajiva to call a general election. R obust domestic demand saw Thailand's goods import growth outpacing goods export growth in July, resulting in a trade deficit of US $940mn. We believe strong private consumption will continue to support import growth in the coming quarters. Furthermore, our view of a slowdown in external demand in 2011 suggests that Thailand's trade balance will continue to deteriorate in the coming quarters. Although we believe the trade deficit in July will be temporary, we continue to maintain our forecast for Thailand's trade surplus to narrow from 7.4% of GDP in 2009 to 4.5% and 3.7% of GDP in 2010 and 2011, respectively. T he government has proposed a minimum wage hike of 21% in October, which we believe will raise production costs for labour intensive industries. I n our view, the agriculture and service sectors, where low-skilled workers dominate the workforce, will be the most affected by the minimum wage hike. T he strengthening Thai baht could also threaten the competitiveness of exporters if it continues to outperform regional currencies going forward. However, we believe the government will introduce further incentives to attract foreign investment and this could help to offset the downside risks associated with operating in Thailand.
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