Thai economy likely to expand 4.6 pct in 2018, BoT likely to hike rates by 25 bps in Q4 2018

Thai economy grew 1 percent sequentially in the second quarter, following the 2.1 percent growth in the first quarter of 2018. On a year-on-year basis, growth remained solid at 4.6 percent year-on-year, and was driven by both the domestic and external sectors. For the first half of 2018, the economic growth accelerated to 4.8 percent year-on-year, much stronger than the 3.7 percent seen in the first half of 2017.

Looking into the second half of 2018, some loss of tourism from China after the Phuket boat tragedy is expected to be a drag on tourism-related activities, but a stronger domestic economy is expected to provide an offset, according to a Barclays research report.

“Following the strong GDP report, we raised our 2018 GDP growth forecast to 4.6% from 4.2% and 2019 to 4.4% from 4.2% earlier”, stated Barclays.

Meanwhile, the second quarter GDP report might influence the Bank of Thailand’s outlook, as indicated by Senior Director Don Nakornthab, who recently stated that GDP growth of 4.5 percent or above in Q2 18 could turn the central bank more hawkish.

The recent comments from the central bank and the August policy statement imply that the central bank is turning more cautious and mindful of the side effects of prolonged low interest rates. More significantly, the BoT has been underlining the need to create policy space.

“As such, we expect the BoT to raise rates by 25bp to 1.75 percent in Q4 18, most likely at the November policy meeting, then pause and remain data dependent for any further moves”, added Barclays.