Upgraded 2014 GDP Forecast Driving Interest in Venture Capital in Thailand
Posted By Admin on August 22, 2014

Goldman Sachs’ recently released GDP and economic forecasts for Thailand following last week’s decision to leave interest rates unchanged by the Central Bank. In doing so, Thailand’s Central Bank reiterated that this level is necessary and sustainable in the near term as the economy recovers from a first half 2014 that was affected by internal political turmoil and poises itself for a rebound in the second half 2014.

While growth over the last twelve month period ending second quarter 2014 is slightly negative at 0.8% year over year, growth has increased marginally from the first quarter this year. Goldman cites a gentle recovery in exports and small gains in imports including machinery, autos, cement, and capital goods. The manufacturing production index decreased once again this quarter compared to preceding seasonally adjusted data.

But Goldman thinks the worst is over with renewed growth expectations for the second half of 2014. Following the contraction that occurred earlier this year following the coup by the National Council for Peace and Order (NCPO), consumer sentiment and enterprise investment has accelerated across the board being driven by several factors including a recovery in foreign direct and indirect investment inflows, an increase in SouthEast Asia venture capital flows targeted at Thailand, a return of bulk tourism to Thailand, and supportive capital and budgetary spending by the NCPO. All this rounds out to newly expected GDP growth forecasts of 5% annualized in the third and fourth quarters of this year.

Goldman also saw a pickup in the Consumer Price Index basket (CPI) resulting primarily from
increases in controlled LPG prices and pass-through pricing to packaged and prepared food. Recently, the NCP has suspended further price increases resulting in softer inflation figures for June and July. Acknowledging this concern, the Central Bank has released risk highlights pointing to higher inflation driven by higher transfer goods pricing due to rising oil prices in Dubai.

Goldman concluded that while they do not expect any further rate reductions in the near term and rates are likely to remain unchanged for the rest of the 2014.

“We haven’t yet seen the return of the mainstream tourist to Thailand, particularly the bulk tour groups. But peak tourism season this winter is expected to show sharp recovery and early signs from booking agents are positive,” says Tom Kim, Co-Founder and Partner at Inspire Ventures. Tom adds “The domestic consumer is a slightly different story and we continue to see substantial unlocked potential here as consumers from both Bangkok metro and outer provinces open their wallets again for lifestyle, fashion, home, and electronics spending. We expect this to continue driving most of near-term indirect capital flows for private equity and venture capital in Thailand as it has for regional ASEAN venture capital.”