Private spending recovery to bolster consumption despite US-China trade war uncertainty

The Stock Exchange of Thailand (SET) Index continued to rally in 2017 with positive returns of 13.7% after reaching 19.8% in 2016. This largely came from broad-based global economic recovery, which boosted petrochemicals, transport, tourism and energy. Meanwhile, the pickup in domestic demand supported the automotive, property and commerce industries. Foreign investment increased in the domestic market in late August 2017 due to easing political concerns after former Prime Minister Yingluck Shinawatra left the country. However, the rapid surge of the index caused some profit taking, and foreign investment in the equity market closed 2017 with a net sale of BT25.6bn ($741m).

In 2017 the country saw 3.9% GDP growth, an acceleration over 3.3% in 2016 and largely attributable to stronger external demand. The strength of key trading partners’ economies has been reaffirmed in 2018, which bodes well for Thai exporters and tourism. In the first quarter of 2018 Customs exports grew by 11% year-on-year, while inbound foreign tourists jumped by 15% .

External Factors

In 2018 the positive trend is expected to continue, with the year-end SET Index projected to be 1890 points in the base-case scenario. The domestic and global economies maintain strong momentum, despite emerging risks of geopolitical issues. Thailand will enjoy the benefits of a stronger US economy, as demand from the US covers 7% of Thailand’s GDP. Exported products that largely hinge on US demand – which may be the biggest beneficiaries – include rubber products, fish and electronic machines, with more than 20% of such products shipped to the US.

While robust US GDP growth bodes well for Thailand, US President Donald Trump’s threat of a trade war with China would have negative implications for the country. The US accounts for one-fifth of China’s export market, and almost half of Thai products exported to China are raw and intermediate products to be used as components of finished products for onward export. These products – especially electronics, petrochemicals, machinery and equipment – would be most affected due to their high export share to China.

Domestic Influence

Domestic private consumption has grown, albeit at a slower pace than external demand due to the weak and uneven recovery of purchasing power, with falling crop prices hitting farm income particularly hard. This could be offset by the government instituting a BT75bn ($2.2bn) welfare card scheme and raising the minimum wage by BT5-22 ($0.14-0.64) per day in April 2018. Government spending – especially on infrastructure projects, including the Eastern Economic Corridor (EEC) – remains a key driver of domestic activity. As a result, KT ZMICO Securities (KTZ) projects 4.2% GDP growth in 2018.

Unfortunately, politics have become more uncertain after the National Legislative Assembly sought a Constitutional Court decision on Senate selection and the election of members of Parliament. This could further postpone the elections expected in May 2019. If the elections proceed as planned, foreign fund inflows are set to be an upside risk for the stock market.


KTZ maintains bullish projections for the tourism sector on the back of record-breaking arrivals, which increased by 8.5% to 35.4m in 2017. Despite the effects of the crackdown on so-called zero-dollar tours, the firm forecasts a further 5.9% growth in 2018 to 37.5m arrivals. KTZ also overweights the construction sector, anticipating BT150bn ($4.3bn) worth of projects to start the tendering process in 2018, including the South Purple Line mass transit expressway project and toll collection for two motorways. Meanwhile, government efforts to push forward the EEC will bolster the sector. This will also benefit Industrial Estate stocks that possess sizeable land available for sale in the area.

In addition, the recovery of private spending should bolster domestic consumption, media and property. Nevertheless, the fierce competition that resulted in the waiving of fees for e-commerce and new accounting regulations should act as headwinds for banking.

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The Report: Thailand 2018

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