Press Briefing on “Green Light 2010? Economic Prospects for Asia and Thailand”
By Dr. Frederic Neumann, Senior Economist, HSBC Asia Pacific
HSBC maintains a bullish forecast for Thailand of 4.6% for 2010, well above market consensus
The main driver of the current recovery is domestic demand, and not, as often assumed, exports, which still lag the regional performance
Both consumption and private business investment have rebounded as inflation fell and interest rates were kept low
Over the course of 2010, we expect domestic demand to accelerate further, receiving an additional boost from soaring tourist arrivals, which are nearing all-time highs, despite recent political uncertainties
A big positive development for Thailand this year, may turn out to be a strong recovery in exports, due to growing demand, especially from China, and rising agricultural prices
With strong growth, however, comes a risk: as elsewhere in Asia, inflation risks rising more than currently anticipated, which requires that the Bank of Thailand starts to increase interest rates in the second quarter
The Bank of Thailand has rarely led the Federal Reserve in raising interest rates but will have to do so now because we do not expect the US central bank to raise rates before the second half of 2011
This poses a dilemma for Thailand: as interest rates go up, and exports bounce back, the currency will begin to strengthen again against the US dollar
This is a challenge many successful Asian economies face and may require the central bank to buy more USD to slow down appreciation
Regionally, the pressure on the THB and Thailand’s competitiveness should ease once the Chinese currency begins to appreciate as well around the middle of the year
