1 April 2012 Supavud Saicheua Thanomsri Fongarunrung Emerging Asia Economist Phatra Securities Thailand Economic Update Thailand: The next steps 11150212 April 2012 Phatra Securities does and seeks to do business with the companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
28
Embed
1 April 2012 Supavud Saicheua Thanomsri Fongarunrung Emerging Asia Economist Phatra Securities Thailand Economic Update Thailand: The next steps 11150212.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
April 2012
Supavud Saicheua
Thanomsri Fongarunrung
Emerging Asia Economist
Phatra Securities
Thailand Economic Update
Thailand: The next steps
11150212
April 2012
Phatra Securities does and seeks to do business with the companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
2
April 2012
World has stepped back from the brink but three major vulnerabilities remain.
Euro area public sector and bank debt rollover is 23% of GDP in 2012.
Rising oil price is a threat to global growth.
Growing risk of slowing EM in medium term Asia +7.3% in 2012. Euro area -0.5%; US 1.8%; China 8.2%.
BoAML’s view
ECB’s LTRO prevented a euro area banking liquidity crunch.
Mild recession in Eurozone
Moderating inflation
US economy will lose momentum; 50% chance of QE3 by 3Q
GEM monetary easing window is closing
IMF: “Optimism must not lull us into a false sense of security”
Good employment data and spending in 1Q was due to unusually warm winter. 2Q data could start to disappoint.
Fiscal drag equal to nearly 4% of GDP in 2013 threatens to slow US economy down during 2H 2012.
Important fiscal decisions postponed to after Nov elections under lame-duck Congress. Fearing division and inaction would cause economy to falter in 2012.
Decisions needed to: renew Bush tax cut ($240bn); extend unemployment benefits and payroll tax ($130bn); sequestration ($150bn).
BoAML still expect QE3 by end of 3Q.
Chart 13: Post election fiscal shocks
9
April 2012 US economy: Fiscal time bomb
Chart 14: Projected spending and revenue (% of GDP)
Source: CBO, Long-Term Budget Outlook, Jun 2011
Chart 15: Unsustainable rise in entitlements
10
April 2012 China and India slowing down
China: Wanting to slow down
Chinese leadership will accept slower GDP growth to bridge the gap between rich and poor and preserve political stability. Growth target 7.5%.
More emphasis on consumption; less on investment
Tight monetary conditions to persist to bring down home prices even if this could hurt growth. Fiscal policy will support growth.
Jan-Feb exports weakened which in part was the result of slowdown especially in Europe.
India: Being forced to slow down
Budget deficit in FY ending March is 5.9% of GDP vs. 4.6% projected. This is forcing fiscal tightening with 2013 deficit target of 5.1% of GDP.
Cutting energy subsidies would raise inflationary pressures and reduce room for RBI to cut interest rates.
11
April 2012 China economic data
Chart 16: IP and power production Chart 17: Retail sales vs exports
Chart 18: Local investments will be the key Chart 19: Money supply and loan growth
12
April 2012
China “the worst is almost over” – Ting Lu
“Unlucky" Jan and Feb: hit by weaker external demand, coldest winter in 27 years, political disturbance, destocking in response to falling home sales, and laziness of banks (complacent about their surging earnings).
Worst is almost over. Fight for political succession done. Leaders will focus on stable growth; banks are cutting lending rates; and new home sales rebounded as mortgage rates for first-time home buyers are cut.
We expect pick-up in Mar industrial output (esp. steel and cement). Subdued inflation provides room for price hikes of fuel, power and other utilities.
GDP growth in 1Q12 slow to 8.3% YoY from 8.9% in 4Q11. QoQ growth (sa) could slow to 1.7% in 1Q12 from 2.0% in 4Q11. We maintain our 8.6% GDP growth forecast for 2012.
No rate cuts and 100bps cut in RRR in 2012. PBoC to encourage banks to cut their lending rates and govt will step up efforts on social housing.
13
April 2012 Thailand 2012: GDP growth 5.7%
Post-flood recovery could raise GDP growth this year to 5.7%.
But the really important questions are:
1. Will the post-flood reconstruction make Thailand better? Or the same
2. Coordination of fiscal and monetary policies
3. Can Thailand cope with much higher oil prices?
Quarterly GDP growth
Economic Forecast
14
April 2012
Recovering gradually from the floods
Source: OIE
Capacity utilization: sharp recovery in autos Full recovery by 3Q
Auto sector recovering faster
About 51,000 unemployed; 30,000 from the seven industrial estates
Electronics recovery lagging
Most will remain in Thailand
Capacity utilization
15
April 2012 Water management plan
Flood reconstruction to cost Bt350bn to return Thailand to pre-flood status quo
Plant more trees (Bt10bn)
Better land use and management (Bt50bn)
Build 17 water catchment areas and a dam (Bt50bn)
Turn 2mn rai of agricultural land into flood plains (Bt60bn)
Build floodways to divert water from industrial areas and Bkk (Bt120bn)
Improve floodwalls along river banks (Bt7bn)
Better forecasting and information (Bt3bn)
Subsidize construction of flood walls for industrial estates (Bt5-6bn)
Bt50bn insurance fund for SMEs and households
16
April 2012 Project details from the government
Immediate action plan of Water Management (2012-3) Action plan of Integrated Flood Mitigation in Chao Phraya River Basin (2012-3)
17
April 2012 Thailand’s flood strategy
Bangkok
Source: KrungThep Turakit newspaper, 27 Feb 12
18
April 2012
Source: Strategic Committee for Water Resources Management, The Nation newspaper
19
April 2012
Flood prevention does not raise productivity
Bt350bn flood prevention spending is meant to restore Thailand to pre-flood status. It does not increase the country’s long term potential growth, however.
Examples of “real growth enhancement”
Thai auto sector said it needs to employ another 150,000 (from 450,000) to produce 2.5mn cars. But Thailand is not producing enough technicians.
Manufacturing employment is currently 5.7mn. Thailand has 12mn workers in low paying non-agri sectors that must be retrained.
Thailand needs to invest Bt65bn to expand Lam Chabang deep sea port by 2019. But EIA and HIA approval will likely take two years.
Participate actively in GMS which is becoming a reality as Myanmar opens up
0
300
600
900
1,200
1,500
1998 2000 2002 2004 2006 2008 2010 Jan-12
0
1
2
3
4
5
No. of unemployed % of total
'000 %Unemployment rate is less than 1%
Employment by sector
Source: NSO
Labor force 38.6mn persons
20
April 2012 Investment remains solid
Thai direct investment surgesInvestment expansion remains solid
Thai inflation is more correlated to high oil prices than high food prices
The government is unable to afford much more energy subsidies (now costing 1.2% of GDP per year).
If oil price spike causes a current account deficit and weakens the baht, the BoT could even hike rates (hopefully not until next year)
Thailand inflation correlates with fuel prices
Source: Phatra calculations
Source: MoC
Weight in CPI 2003-J an 2012 2006-J an 2012
CPI vs Food prices 33.00% 0.35 0.35
CPI vs Fuel prices 5.30% 0.78 0.79
Correlation for the period
Weight in CPI 2003-J an 2012 2006-J an 2012Food price index 33.0% 0.35 0.35Fuel price index 5.3% 0.78 0.79
25
April 2012 Myanmar: the game-changer
The opening up of Myanmar is the missing piece that completes the Greater Mekong Sub-region as an economic zone from the South China Sea to Andaman Sea.
250mn new consumers and workers with rich natural resources to back them.
Dawei (Tavoy) is like Map Ta Phut, only 8-10 times larger.
But in his book “Burma and the new crossroads of Asia: Where China meets India”, Thant Myint-U wrote:
“In October 2010, the governments of Burma and Thailand revealed plans for the development of a massive industrial complex…$8.6bn will be invested in basic infrastructure. Another $58bn in investments (that).… will include a deep-sea port, steel, fertilizer and petrochemical plants, and an oil refinery. A new highway will cut through the mountains to Bangkok. There will be tourist resorts as well, on a giant scale. Tavoy will be ground zero….There are justifiable worries that all this will devastate the environment. And indeed, the Thai government has said that its prime motivation in supporting the project is to move environmentally damaging industries from Thailand to Burma.”
26
April 2012 Greater Mekong Sub-Region
27
April 2012
Politics: A ceasefire waiting for a solution
A stalemate during the “twilight years” could last a long time and could prove costly to Thailand
It is a zero sum game: realignment of political power is likely to produce losers and winners
Three main political issues that reflect the ongoing search for a solution:
1. Amendment of the constitution to give more power to those elected by the people
2. The talk of judicial reforms and inevitable realignment in the military
3. Govt. will push for a national reconciliation law
After constitutional amendment, new elections to confirm Pheu Thai’s dominance next year is possible
However, any shortcomings of the govt on the economy could cause political stability to unravel as it may be seen as a failure of democracy.
28
April 2012 Important Disclosures
Copyright 2012 Phatra Securities Public Company Limited (“Phatra Securities”). All rights reserved. Any unauthorized use or disclosure is prohibited. For distribution
outside of Thailand, the distribution will be restricted to only “institutional investors” or other similar types of investors as stipulated in each jurisdiction. In preparation of this research report, Phatra Securities has assumed and relied on the accuracy and completeness of all information or data supplied or otherwise made available to us including public available information. Phatra Securities assumes no responsibility for independent investigation or verification of such information and have relied on such information being complete and accurate in all material respect.
Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other
derivatives related to such securities ("related investments"). Officers of Phatra Securities may have a financial interest in securities of the issuer(s) or in related investments. Phatra Securities or its affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this research report.
This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial
situation and the particular needs of any specific person who may receive this research report. Phatra Securities assumes no obligation to update or otherwise revise this research report. Investors should seek financial and investment advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this research report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this research report. In addition,
investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.