2018 GDP Growth Was Revised Upward by 0.2 Percentage Points

Bank of Thailand (BOT) kept its policy rate unchanged at 1.50%, in line with market expectations, following a 6-1 vote at its monetary policy meeting in March. The policy rate has been unchanged since its last 25bps cut in April 2015. The Committee highlighted that the country’s GDP growth will expand at a faster rate in 2018, supported by the expansion of the external sector and rise in domestic demand. BOT revised its 2018 GDP growth forecast upwards to 4.1%, from its previous forecast of 3.9% (3.9% in 2017). The Committee highlighted some downside external risks to the country’s growth outlook, such as uncertainties on US economic and foreign trade policies, tariff retaliations of US trading partners and geopolitical risks. The country’s inflation is anticipated to trend higher with upward pressure arising from the expansion in domestic demand and rise in global oil prices. However, with the larger than expected drop in fresh food prices, BOT has also revised slightly lower the headline inflation forecast to 1.0% yoy from 1.1% yoy previously (0.7% in 2017).

In a recent report by IMF on Thailand, it noted that the country’s economic performance continues to improve, where growth was driven by strong exports of manufacturing goods and tourism services. However, IMF cautioned that growth has not been broad-based, and export gains have not sufficiently trickled down to household incomes and investments in other sectors. As IMF noted that the country’s growth momentum continues but with an unbalanced composition, we believe BOT is in no hurry to normalise monetary policy and raise policy rates this year, as inflation has also been subdued, having averaged 0.6% yoy in the first two months of 2018 compared to 1.5% yoy in the same period a year ago. Recently, Thailand’s Finance Minister also stated that interest rates should not be raised in 2018 as economic growth is not broad-based, while inflation remains below BOT’s target range of 1-4%. The central bank guided “the strength of the domestic demand recovery and inflation developments must be monitored” and its monetary policy should remain accommodative but it will use available policy tools if required to sustain economic growth and maintain financial stability.”

Separately, after the disappointing February’s weak non-oil domestic exports (NODX), Singapore’s industrial production index (IPI) also showed some slowdown, easing to 8.9% yoy in February after rising sharply to 16.9% yoy in January. We believe this was partly due to seasonal factor from Chinese New Year holiday in February, which cut the number of production days during the month. Nonetheless, the growth reported was higher than market expectations of 4.2%. We believe Singapore’s 1Q18 GDP growth, which will be released on 5th April, will expand higher than 3.6% yoy in 4Q17, likely to grow in a range of 4-4.5%.

Source: Affin Hwang Research - 30 Mar 2018