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Thailand Economic Outlook

May 2016

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Thailand’s economic growth has been below trend due to various factors

• Coup in 2006

• US subprime crisis

in 2008-2009

• Eurozone debt crisis

in late 2009

• Japan’s tsunami

and Thailand’s great

floods in 2011

• Coup in 2014

0

2

4

6

8

10

12

0 10,000 20,000 30,000 40,000 50,000 60,000

10-Y

ear

Avg

. G

row

th R

ate

(%

)

GDP Per Capita (USD)

China

Singapore

USJapan

Eurozone

S.Korea

Malaysia

Thailand

Philippines

Indonesia

Source: IMF, KResearch

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2H20162H2016 20172017

• Brexit (?)

• Donald Trump (?)• China

• Referendum on the Draft Constitution

• Brexit (?)

• Donald Trump (?)

• China• The Fed raising rates

• General Election & Politics

Global Events

Domestic Events

Key events to affect the Thai economic outlook

• High Household Debts, Labor Shortage & Aging Population …..Long-term Issues

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The Thai Economy

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1Q2016 GDP growth improved to 3.2% YoY, up from 3.0% in 4Q2015

• March exports grew 1.3% YoY, continuing the positive trend from the

10.3% jump in February

• Imports fell 6.9% YoY, moderating from the 16.8% drop in February

• Foreign tourists rose 15.6% YoY in March, continuing from the16.0%

increase in February

• Domestic car sales dropped 2.3% YoY, moderating from the 10.7% fall in

February

• Thai Industrial Sentiment Index improved to 86.7 in March, reversing the

downward trend seen in the previous two months

• Agricultural price index fell 1.7% YoY in March, moderating from the 7.5% contraction in February

In addition to the higher GDP growth in Q1,

Thai economic indicators show signs of bottoming

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Excluding gold and oil, March exports rose 0.5% YoY

Units: %YoY 2015 2016

Jan Feb Mar YTD

Total Exports -5.8 -8.9 10.3 1.3 0.9

ex. gold -6.3 -7.7 0.2 -1.1 -2.7

ex. gold & oil -5.0 -6.3 1.5 0.5 -1.4

U.S. 0.7 -8.5 0.3 -1.4 -3.2

China -5.4 -6.1 -7.6 -5.4 -6.4

EU 28 -6.0 -2.0 4.6 -1.8 0.2

Japan -7.7 -10.1 34.8 -6.1 5.7

ASEAN 5 -15.1 -14.9 31.8 12.4 9.1

CLMV 7.7 1.2 -5.8 -6.9 -4.0

• Gold 262.5% YoY

• Rice 7.3% YoY

• Auto & Parts 2.9% YoY

• IC 2.2% YoY

Top Performers in March

Source: Ministry of Commerce

• Rubber -21.1% YoY

• Tapioca Products

-12.6 % YoY

• Refined fuels

-51.5% YoY

Top Draggers

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The government budget disbursement continues to provide

a much needed push to the economy

50.955.1

31.9

51.456.1

27.8

0

10

20

30

40

50

60

% Disbursement rate

Government Budget Disbursement

6M-FY2016 6M-FY2015

TotalBudget

CurrentBudget

InvestmentBudget

Source: FPO, KResearch

+38.3% YoY

+3.5% YoY

+6.6% YoY

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Motorways

THB 160 bn

Mass Transit System

THB 397 bn

Dual Track Railways

(1.0 m width)

THB 118 bn

Air & Marine Transportation

THB 54 bn

Dual Track Railways

(1.435 m width)

THB 1,066 bn

Infrastructure Investment Projects (Urgent Phase) starting in 2016-2017

aimed at facilitating economic growth and development

Total: THB1.796 tr

• By end-2016 : THB 297.6 bn

• By end-2017 : THB 257.8 bn

• 2018 onward : THB 1,241 bn

Investment Time Frame

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If not approved, the NCPO may submit another draft without holding a referendum

7 August 2016

General election to

be held by end-

2017 regardless of

the referendum result

The Constitution Drafting Committee has finished drafting the new charter

A referendum will be held

Drafting of organic laws associated with the new charter and the coming election

Thailand’s key political timeline

If approved, the draft charter will be submitted to HMK for royal endorsement

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Global Economy

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China’s high debts pose risks to the economy

282269

258

% of GDP

Source: McKinsey

Moody's estimated that liabilities worth 20% to 25% of GDP could potentially require restructuring

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• April’s manufacturing PMI turned

out below expectations

• Exports were also lower than expected

China

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Units: % YoY Apr 2016 Consensus

Forecast

Mar 2016

Industrial Production 6.0 6.5 6.8

Retail Sales 10.1 10.5 10.5

Fixed Asset Investment

(YTD)

10.5 10.9 10.7

Yuan Loans 14.4 14.8 14.7

China economy continues to slow

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• Non-farm payrolls were lower

than expectation in April, in

line with the cooling GDP

growth (0.5% QoQ annualized from 1.4% in 4Q2015)

U.S.

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U.S. Manufacturing PMI • Manufacturing PMI remains

weak, due to impact of soft oil

prices on oil and gas

production. Industries have

also been hurt by the weak

global economy

• The Fed signals no rush to raise rates

U.S.

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• Going forward, the U.S.

economic momentum will

depend on the strength of

consumer spending following

the improved labor market

condition

• If all goes well, the U.S. GDP

growth is expected to pick up

the pace in the second half of

the year

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Euro Area Manufacturing PMI• Euro Area GDP growth slowed to

1.5% YoY in 1Q2016

• The ECB made no change to

policy at its April meeting, as

expected

• But President Mario Draghi

indicated that the ECB will keep

the door open for more stimulus if necessary

Euro Area

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Japan Manufacturing PMI • Japan manufacturing PMI

shows contraction in

industrial activities for the

second consecutive month,

due to the drop in exports

and the strong yen

• The BOJ disappoints the

market by keeping policy

rate steady in its April

meeting

Japan

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• Japan’s Core Inflation fell

0.3% over year in March,

while the Head Line

inflation dropped 0.1%.

Both were below market

expectations.

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The BOJ is most likely to ease more;

the ECB will follow if inflation expectation does not improve

GDP Growth (YoY)

Core Inflation Inflation

Expectation*

Policy Rate

U.S. 2.0% (Q4-2015) 2.2% (Mar-2015) 1.65% 0.25-0.50% (Fed Funds Rate)

Euro Zone 1.6% (Q4-2015) 0.7% (Apr-2015) 1.03%** -0.4% (Deposit Facility Rate)

Japan 0.7% (Q4-2015) -0.3% (May-2015) 0.31% -0.1% (Policy Rate Balance)

* implied from 10-year bond yields

** Germany’s

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2016 Growth Forecasts

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IMF has recently cut the global growth outlook

Units: % YoY 2015 2016 2017 Difference from the Previous Forecast

2016 2017

World 3.1 3.2 3.5 -0.2 -0.1

U.S. 2.4 2.4 2.5 -0.2 -0.1

Euro Area 1.6 1.5 1.6 -0.2 -0.1

Japan 0.5 0.5 -0.1 -0.5 -0.4

China 6.9 6.5 6.2 0.2 0.2

Oil -47.2 -31.6 17.9 -14.0 3.0

Non-FuelCommodities

-17.5 -9.4 -0.7 0.1 -1.1

IMF World Economic Outlook Apr 2016

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2.8 2.8 2.83.3

0.00.51.01.52.02.53.03.5

1H15 2H15 1H16f 2H16f

Progress of government investment projects is expected to be more evident in 2H16

Source: NESDB, and KResearch Forecast

2016 outlook to improve in 2H

% YoY

Possible projects kickoff

• New mass transit & dual-track rail systems

• Suvarnabhumi Phase 2

• New motorways• Broadband

• Small investment projects

• Tumbon-level projects

% YoY

Carried over projects

Better-than expected inbound tourists will be another boost

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Unit : % YoY 20152016

NESDB BOT KResearch

Real GDP 2.8 3.0-3.5 3.1 3.0

Private Consumption 2.1 2.3 1.8 1.9

Private Investment -2.0 2.1 2.4 2.3

Public Investment 29.8 11.7 10.7 11.5

Exports -5.8 -1.7 -2.0 0.0

Headline CPI -0.9 0.1-0.6 0.6 0.4

Thailand’s Economic Growth Forecast 2016

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Business Outlook in 2H2016

%Growth YoY 2015 1H/2016 2H/2016 2016

Domestic Cement Sales -0.8 1.1-2.2 3.0-6.0 2.0-4.0

No. of Foreign Tourists 20.4 11.6-12.6 9.3-11.4 10.4-12.0

Revenue of Listed Private Hospitals 11.6 9.0-11.0 10.0-14.0 10.0-12.0

Export Volume of Automobiles 6.8 2.0-5.0 3.0-9.0 0.0-5.0

Domestic Car Sales -9.3 -8.0 to -5.0 -13.0 to -9.0 -11.0 to -7.0

Modern Trade Market Value 2.8 2.6-2.8 2.8-3.1 2.7-3.0

Export Value of Rice -15.2 2.0-8.0 -12.0 to -8.0 -5.0 to -4.0

Export Value of Rubber -16.0 -6.0 to -2.0 -12.0 to -4.0 -13.0 to -9.0

Export Value of Tapioca Products -1.6 -8.0 to -3.0 -6.0 to -4.0 -9.0 to -6.0

Forecasted by KResearch (As of May 13, 2016)

• In 2H2016, construction, healthcare, retail trade businesses will likely register improving growth along with the overall economy

• Meanwhile, tourism-related business is expected to maintain promising growth

• On the other hand, sectors related to agriculture products and sales of durable goods may still be under pressure

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Mid to Long-Term Issues

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Thailand’s debt-to-GDP ratio has been rising

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By the year 2020 ...

• Household Debt to GDP is expected to rise to 88% from

81.5% at the end of 2015

• Household Debt Service Ratio will be near 40% from 27.2% *

* 2013 according to the National Statistical Office

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Free Trade Framework … AEC , TPP and RCEP

Malaysia

Indonesia

AEC

TPP

Singapore

Vietnam

Brunei

Philippines

Thailand

Myanmar

Cambodia

Lao PDR

Canada

Mexico

US

Peru

Chile

Japan

New

Zealand

AustraliaSouth Korea

India

China

RCEP37% of world’s GDP

25% of world’s trade

12% of world’s population

29% of world’s GDP

40% of world’s trade

50% of world’s population

Trans-Pacific Partnership Regional Comprehensive Economic Partnership

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From ASEAN+1 FTAs To RCEP

Progress in negotiation

Eliminate import tariff on 65% of products traded within

RCEP countries (around 8,000-9,000 items)

Gradually reduce tariff on another 20% of products within

10 years

The remainder of 15%, mostly categorized into a sensitive

list are subject to further negotiation.

1

2

3

Negotiation extended to be finalized within 2016 …

and the agreement to be effective in 2017

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TPP…Increasing US Roles in Asia Pacific

o The agreement involves greater liberalization

and cover trade, services, investment and

intellectual property.

o Liberalization of trade in goods will see more

than 11,000 tariff lines subject to 0% tariff

rate.

o There will be liberalization in service and

investment as well as reduced restrictions

among member countries.

2015201520152015: Negotiation among 12 member : Negotiation among 12 member : Negotiation among 12 member : Negotiation among 12 member countries were finalized October 5, 2010.countries were finalized October 5, 2010.countries were finalized October 5, 2010.countries were finalized October 5, 2010.

2005: Implemented first with Brunei, Chile, New Zealand and Singapore under the Trans-Pacific Strategic Economic Partnership (TPSEP)2008:US taking part in negotiation in February while Australia, Vietnam and Peru joining the talk in November

2010: Malaysia taking part in negotiation2012: Canada and Mexico taking part in negotiation 2013: Japan taking part in negotiation

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RCEP vs. TPP

RCEP Regional Comprehensive Economic Partnership

TPPTrans-Pacific Partnership

Economic size

29% of world’s GDP

40% of world’s trade

50% of world’s population

55.6% of Thai exports

37% of world’s GDP

25% of world’s trade

12% of world’s population

41.3% of Thai exports

Trade

• The main target is to eliminate tariffs on

all import items as the agreement

focuses on trade in goods

• The target is to eliminate tariffs on all import

items, with the US being a major consuming

country

Service sector

liberalization• Unclear, positive list likely to be adopted • Negative list adopted

Investment • Unclear• The target is to allow foreign investors to hold

100 percent of shares

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Aging Society

Thailand is becoming a Super-Aged Society

26.4

21.4

14.7

10.49.5

6.85.5

30.7

28.2

20.1 19.5

16.2

12.9

8.2

0

5

10

15

20

25

30

35

Japan Germany U.S. Thailand China Vietnam India

2015

2020

2025

2030

% of population aged 65 or higher

By 2030, India will outgrow China

in term of population

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