2Q2018 GDP grew 4.6% y/y, lower than 1Q2018 growth of 4.9% y/y which was a five-year high. We found Thailand’s 2Q2018 GDP performance trend to be in line with regional peers whereby growth was much slower than 1Q2018. However, we feel the economy is on track to expand around 4.3% in 2018 and 4.0% in 2019. Growth is likely to slow down gradually over the coming quarters owing to a moderate global outlook in 2019. The US-China trade war is causing uncertainty and thus is expected to potentially impact exports. However, domestic activities are poised to support GDP.

Meanwhile, the Bank of Thailand (BoT) turned hawkish after the 2Q2018 GDP figures as it considered the right time to institute the first rate hike since 2011. The BoT is of the view that there is now less urgency to maintain a cheap monetary policy to boost growth and sees the need to follow the global interest rate direction. While the risk of rate hike is creeping up, the setback is that July’s headline inflation of 1.5% and the average first seven months at 1.05% are way below the mid-point of the 1%-4% inflation target range. This could limit the BoT’s ability to institute its first rate hike anytime in 2018. We feel policy normalisation is more likely to start in 2019.

• 2Q2018 GDP grew 4.6% y/y, lower than 1Q2018 growth of 4.9% y/y which was a five-year high. Growth was supported by agriculture, wholesale and retail trade and construction sectors, while manufacturing, hotel and restaurant, and transportation and communication sectors slowed down.

• From the demand side, support came from private consumption, which was up 4.5% y/y against 3.7% y/y in 1Q2018 while private investment rose 3.2% from 1Q2018’s reading of 3.1%. Government spending grew slower by 1.4% y/y in 2Q2018 from 1.9% y/y in 1Q2018. Meanwhile, export and imports gained 6.4% y/y and 7.5% y/y respectively in 2Q2018 from 6.0% y/y and 8.7% y/y respectively in 1Q2018.

• On the supply side, agricultural output jumped by 10.4% y/y in 2Q2018 from 6.5% y/y in 1Q2018 due to favourable weather conditions which drove crop yields. Meanwhile, the non-agricultural production grew slower by 4.1% from 4.8% in 1Q2018 due to weaker manufacturing and tourism-related sectors.

• We found Thailand’s 2Q2018 GDP performance trend to be in line with the regional peers whereby growth was much slower than 1Q2018. For instance, Indonesia’s GDP expanded 5.27% y/y in 2Q2018 from 5.06% y/y in 1Q2018, while Malaysia’s was 4.5% y/y from 5.4% y/y in 1Q2018, the Philippines was 6.0% y/y from 6.6% y/y in 1Q2018, and Singapore was 3.9% y/y from 4.5% y/y in 1Q2018.

• However, we feel the economy is on track to expand around 4.3% in 2018 and 4.0% in 2019. Growth is likely to slow down gradually over the coming quarters owing to a moderate global outlook in 2019. The US-China trade war is causing uncertainty and thus is expected to potentially impact exports. However, domestic activities are poised to support GDP.

• Meanwhile, the Bank of Thailand (BoT) turned hawkish after the 2Q2018 GDP figures as it considered the right time to institute the first rate hike since 2011. The BoT is of the view that there is now less urgency to maintain a cheap monetary policy to boost growth and sees the need to follow the global interest rate direction.

• While the risk of rate hike is creeping up, the setback is that July’s headline inflation of 1.5% and the average first seven months at 1.05% are way below the mid-point of the 1%-4% inflation target range. This could limit the BoT’s ability to institute its first rate hike anytime in 2018. We feel policy normalisation is more likely to start in 2019.

Source: AmInvest Research - 21 Aug 2018