Executive Summary.. 5
Core Views...5
Major Forecast Changes.....5
Key Risks To Outlook.....5
Chapter 1: Political Outlook. 7
SWOT Analysis... 7
BMI Political Risk Ratings..... 7
Domestic Politics... 8
Resurfacing Political Tension Suggests Cautious Outlook On Equities...8
Attempts by Thaksin Shinawatras political allies to seek amnesty for the ousted former prime minister could risk reigniting political
tensions in Thailand. Although Thai equities have displayed resilience during the political turmoil in 2010, we are keeping a cautious
outlook on the Stock Exchange of Thailand Index over the coming months. Should we see further evidence that the political situation is
starting to break down, we could be tempted to take a bearish stance on the stock market.
TABLE: Political Overview.. 8
Long-Term Political Outlook... 10
Three Scenarios For The Next Decade...10
Thailands political situation will remain highly volatile and it is difficult to envision political stability over the next few years. In the event
of prolonged social unrest, we do not preclude another military coup occurring, although this would by no means resolve matters.
Chapter 2: Economic Outlook.... 13
SWOT Analysis..... 13
BMI Economic Risk Ratings.... 13
Economic Activity.... 14
Contraction In Q411, Heightened Risk Of Recession....14
We have downgraded Thailands real GDP growth forecast from 3.6% to 1.5% for 2011 in light of the economic damages brought on
by the recent floods. Although we expect to see a rebound in economic activity in H112 on the back of reconstruction efforts, external
demand should remain depressed due to deteriorating global economic growth. Thus, we are maintaining our forecast for a subdued
real GDP growth of 4.0% for Thailand in 2012. We warn that the threat of a collapse in external demand could easily tip the country into
recession.
TABLE: ECONOMIC ACTIVITY.. 14
Monetary Policy.... 16
Rate Cuts Could Come Early In 2012..16
Recent floods have exacerbated downside risks to Thailands economic growth, and we believe this should prompt the Bank of Thailand
(BoT) to cut rates early in 2012. T he BoT has signalled its intention to downgrade its real GDP growth forecast, a move that we see as
a precursor for monetary easing (we are pencilling in 50 basis points worth of rate cuts next year). Meanwhile, inflationary pressures
should continue to cool on the back of an expected slowdown in private sector credit growth and stabilising commodity prices.
TABLE: MONETARY POLICY.... 16
Capital Outflows A Key Risk For BoP Outlook...17
We see increasing risks that Thailands balance of payments position could come under severe strain as investor sentiment continues to
deteriorate on the back of a worsening outlook for external demand. Recent floods have also undermined the countrys current account
dynamics as we expect the trade surplus to continue to narrow over the coming quarters. Given that Thailand remains heavily reliant on
foreign investment, we caution that the country could remain vulnerable to the threat of capital flight in the near term.
Fiscal Policy..... 19
Expect A Deeper Budget Deficit For 2012..19
Extensive flooding in Bangkok and surrounding provinces are expected to result in increase public spending over the coming months.
Tax revenues should also be affected by the slowdown in economic activity and promised tax cuts by the government to support
struggling businesses, putting further pressure on Thailands fiscal deficit. Consequently, we have revised our forecast for the fiscal
deficit upwards from 2.8% of GDP to 4.1% in 2012.
TABLE: CURRENT ACCOUNT ... 19
Tougher Rules Ahead For Bills Of Exchange.21
The unfettered growth of bills of exchange (BE) as an alternative method of financing for domestic banks in recent years is beginning
to undermine the stability of Thailands banking system. The Bank of Thailand is reviewing plans to tighten regulations that will require
banks to set aside liquidity reserves for BEs, and we expect these measures to be implemented over the coming months. We remain
optimistic that plans to tighten regulations on BEs will help reinforce confidence in the strength of domestic banks and, more importantly,
prevent the abuse of leverage within the banking system.
TABLE: FISCAL POLICY.... 21
The Thai Economy To 2021..... 23
Politics Hold Key To Long-Term Growth....23
The Thai economy should expand fairly robustly until 2021 but continued political uncertainty means that its full growth potential is
unlikely to be reached. Aside from the political turmoil, a greater focus on improving human capital and transport infrastructure is needed
to ensure that Thailand remains competitive.
Chapter 3: 10-Year Forecast.. 23
TABLE: LONG-TERM MACROECONOMIC FORECASTS .... 23
Chapter 4: Business Environment. 27
SWOT Analysis..... 27
BMI Business Environment Risk Ratings.. 27
Autos, Tourism And Retail Sectors To Be Hardest Hit By Floods...28
We believe that the automobile, tourism and retail sectors will be most affected by recent floods. Should the situation in Bangkok
deteriorates further, with the floods taking a much longer period of time to recede, we warn that economic damages could easily surpass
the governments estimates.
Business Environment Outlook . 29
Institutions ... 29
TABLE: BMI Business And Operation Risk Ratings... 30
TABLE: BMI Legal Framework Rating... 31
TABLE: Labour Force Quality..... 32
Infrastructure ... 33
Market Orientation ... 34
TABLE: Asia, Annual FDI Inflows..... 34
TABLE: Trade And Investment Ratings..... 35
TABLE: TOP EXPORT DESTINATIONS , 2002-2009 (US $mn). 36
Operational Risk .. 37
Infrastructure.... 39
Chapter 5: Key Sectors... 39
Oil & Gas... 43
TABLE: Infrastructure Sector Key Indicators.. 43
TABLE: Asia Pacific Oil Consumption (000b/d).... 45
Other Key Sectors.... 46
TABLE: Autos Sector Key Indicators... 46
TABLE: Food and Drink Sector Key Indicators.... 46
TABLE: Oil and Gas Sector Key Indicators.... 47
TABLE: Pharma Sector Key Indicators.... 47
TABLE: Telecoms Sector Key Indicators... 48
TABLE: Defence and Security Sector Key Indicators.. 48
TABLE: Freight Key Indicators.... 48
Chapter 6: BMI Global Assumptions. 49
Global Outlook.. 49
Eurozone Break-Up Risks Rising ...49
TABLE: GLOBAL ASSUMPTIONS ..... 49
TABLE: DEVELOPE D STATES REAL GDP GROWTH FORECAST .... 50
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS .... 50
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST ... 51