Thailand's 2012 GDP growth to hit 5.5%

Thanks to a possible 15.2% 4Q headline GDP.

According to DBS, headline GDP is expected to reach 15.2% YoY in 4Q, taking full-year 2012 growth to 5.5%. Notably, the growth figure will be inflated due to very favorable base effects resulting from floods a year ago. 

Fundamentally, the performance of the domestic sector is a lot more vibrant than the external sector. The sharp increase in minimum wages in April and rice pledging scheme have been critical towards sustaining the domestic consumption story.

Moreover, price pressures have been low, allowing the central bank to reduce the policy rate by 50bps through 2012, thereby facilitating credit creation. Regarding investment, the private investment index (sa) has softened just a tad in 4Q.

Here's more from DBS:

This is not surprising as the reconstruction demand has already been largely completed by 3Q. Further investment will be driven in large part by the government’s infrastructure programs.

Net exports have been a drag since 1Q12 as a combination of robust consumption and reconstruction needs keep imports elevated, while exports have a mixed performance.

External demand was generally lackluster amid the intensification of the Eurozone crisis and a slowdown in the Chinese economy. As a result, when pent up demand eased, weakness in final demand (especially on the electronics side) started to show.

The rice pledging policy also severely restricted the price competitiveness of Thai rice. The bright spot lie with the automotive industry, which was able to offset drags from the agriculture and electronics segments.

The same thing has played out in 4Q, but on account of base effects, net export is expected to contribute 6.5pct-pts to headline YoY growth.

Barring an excessively weak GDP number, we do not expect the central bank to cut the policy rate this Wednesday despite pressure from the government.