Brace yourselves for Thailand's economic comeback

But it'll be less-than-stellar.

Morgan Stanley has revised its 2014/2015 GDP growth forecasts from 0%/3% to 0.6%/3.6%, respectively, and 1Q14 GDP has been retrospectively revised upwards and 2Q14 GDP has shown a more substantial sequential %QoQ turnaround than expected.

According to a research report from Morgan Stanley, this better-than-expected incoming momentum lifts the trajectory for the full year and necessitates an increase in both the 2014/2015 growth forecasts.

However, the report noted that its forecasts are still below consensus, which stands at 1.2%/4.2% for 2014/2015.

Here's more from Morgan Stanley:

Does the better-than-expected 2Q14 herald upside surprise in 2H14 and thereafter? MSCI Thailand (USD terms) has outperformed MSCI EM this year despite the year-to-date net foreign equity outflow of US$744mn (as of end August), with forward PE rising above 1 standard deviation to historical mean, suggesting that the locals, at least, are anticipating a strong growth recovery.

With 2Q14 registering better-than-expected momentum, could 2H14 and 2015 growth similarly surprise to the upside?

In our view, upside growth surprise could stem from a combination of domestic and external factors such as:

(a) stronger-than-expected fiscal stimulus;

(b) a faster-than-expected and smooth transition to a functioning and effective civilian government that in turn bolsters sentiments;

(c) better-than-expected pickup in private sector demand as political environment stabilizes; and/or

(d) stronger than expected export momentum from global demand.

We see the 2H14 economy continuing the sequential recovery that started in 2Q14 as the May-14 coup put an end to the political disorder that was manifesting itself on the streets.

However, we still believe that a vigorous growth recovery is unlikely, and note the following:

(1) Domestic Demand Pickup in a Post-Coup Environment Tends to Be More Subdued vs. a Regular Growth Cycle; July/Aug Macro Indicators Are Still a Mixed Bag

(2) Fiscal Stimulus Does Not Look Exceptionally Aggressive; Room For Monetary Stimulus Limited and No More Rate Cut Expected

(3) Scant Pent-up Demand; Leverage Will No Longer Be a Growth Tailwind, but More Likely a Growth Headwind

(4) Productivity Dynamics Has Been Weakened; Weakening Global Export Limits Growth Alpha

(5) Demographics a Slow but Sure Drag on Structural Growth Story

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