2 biggest culprits behind Thailand's GDP forecast downgrade

Forecast was slashed to 3.7%.

According to DBS, as anticipated, the BOT has downgraded its GDP growth forecasts to 3.7% and 4.8% YoY for 2013 and 2014 respectively (from 4.2% and 5.0% earlier). A fragile global economic recovery and delays in public infrastructure spending were the two key reasons.

Here's more from DBS:

Private consumption has also somewhat eased recently, although this is likely to be only temporary. A tight labour market and rising household income would continue to boost private consumption growth into 2014.

The September trade data, also released on Friday, was broadly disappointing. Export growth fell by 6.6% MoM sa, reversing all the gains made in August. More importantly, imports have been falling at an average of 2% MoM sa in the past 3 months.

The expiration of the government’s first-car tax rebate scheme was mostly behind this though. It remains to be seen if import growth will pick up again especially if business confidence were to recover.

Nevertheless, the central bank is still far from being in a panic mode. If anything, its view that a more stable recovery will be witnessed in early 2014 still signals its underlying hawkish leaning.

The BOT is likely to maintain its policy stance for now. Some policy normalization is still in the offing for next year. How high would interest rate go is partly a function of inflationary pressure going forward. BOT has just lowered its forecast again to 2.4% for 2014, a signal that any policy tightening would be gradual.

Our current CPI inflation forecast stands above 3.0% YoY and we have been pencilling a total of 50bps rate hikes in 2014.