HSBC: Thai GDP could hit 6.1% full year

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HSBC: Thai GDP could hit 6.1% full year 
The Nation: 9 Jun 2010
Full year growth could hit 6.1%: HSBC
By THE NATION
Published on June 9, 2010

The political turbulence has trampled second-quarter economic growth, but thanks to the surprise upside in the first quarter, whole-year growth could touch 6.1 per cent as long as the relative calm continues, HSBC Research said yesterday in a note.

Hammered by a sharp fall in tourist arrivals and not helped by the postponement of investment activities, the second quarter will bear the brunt of this damage. HSBC projects a sharp sequential shrinkage of 3.5 per cent for the quarter, a vastly different trajectory compared to the 4-per-cent sequential growth that the economy registered for each of the two preceding quarters.

"However, we believe the second half of the year will see the economy picking up speed again, even if it does so gingerly. For instance, the tourism sector should bounce back, judging from the experience of Bali - another top Asian destination that was hit by worse security concerns.

"Meanwhile, FDI-driven investment should stay resilient - anchored by its competitive advantages in infrastructure, macro stability and the breadth of local supporting industries. Moreover, the country's export sector should continue to offer a helping hand, even if the regional trade recovery is now stepping into a consolidation stage."

The second-half growth forecast was trimmed, but the strong first-quarter number will more than offset the cuts in growth rates for the other quarters - resulting in a slightly higher new GDP growth projection of 6.1 per cent for 2010.

"Beyond that, we expect growth to consolidate in 2011 at a rate of 4.4 per cent. The wildcard, in our relatively sanguine outlook, remains the potential for another major rise in the political temperature."

Financial authorities are now forecasting growth of at least 3.5 per cent this year, and the Bank of Thailand has said 5.8 per cent could be exceeded if political turbulence at home and the debt crisis in Europe ease. HSBC's earlier forecast for 2010 GDP growth was 5.7 per cent.

HSBC noted in its report that though tourism - contributing 7 per cent of GDP - was a big victim of the political crisis, the impact will be short term. If political normalcy holds, tourist bookings for the fourth quarter should return. After the bombings in Bali in 2002 and 2005, foreign investors returned to the island within a few months of the attacks.

"In contrast, in the case of Bali, foreign tourists were the main target of the terrorist attacks - and yet, they kept flocking back. Together with the fact that other major tourist destinations in Thailand, such as the island of Phuket, stayed out of the troubles affecting Bangkok, the less distressing nature of the security risk and the no less established manner of its appeal as a prime tourist destination might even see Thailand's tourism sector recover faster than Bali's did," it said.

Thailand should achieve 13 million tourist arrivals this year, it said.

Thailand will keep drawing foreign investment given its infrastructure and macroeconomic stability. The two favourable factors are unaffected by the turmoil and such advantages have helped to install Thailand as an integral part of the just-in-time electronics component production system across Asia. They have also elevated Thailand as Asean's largest automobile production hub, it said.

"We take the view that foreign investment will not see any long-lasting malaise. Though we can only be fully assured once we see the actual data for the month of May - when the violence hit its peak - it is heartening to see that foreign investors appeared to be relatively unperturbed in the tumultuous month of April."

The bank expects the export sector to continue propelling the economy, thanks to the global economic recovery. Although second-quarter GDP growth would narrow to 6 per cent compared to the same quarter last year, due to the chill to private consumption and some delaying of investment activities, Thailand should register growth of 4.3 per cent in the third quarter and 2.7 per cent in the fourth quarter, it added.