Thailand Business Forecast Report Q2 2008

2008 Holds Much Promise and Many Pitfalls

Thailand Has Reverted Back to Democracy following The December 2007 Elections That Put The People Power Party and Its Coalition Allies in Power. The Primary Focus of The New Administration Is to Restore Confidence in The Economy, Which Has Suffered from A Lack of Consumer and Business Confidence for Much of The past Two Years, Thereby Acting as A Drag on Growth. The Timing of A Domestic Revival Could Not Have Been Better, Given That The Pillar of The Thai Economy, The Export Sector, Is Set to Experience A Slowdown in 2008 as A Result of Unfavourable External Conditions Stemming from Slower Us and Eu Growth. However, It Remains to Be Seen Just How Successful The Government Will Be in Contributing Its Share to Economic Expansion by Implementing Its Longdelayed Mega-Infrastructure Projects First Envisaged by Ex-Premier Thaksin Shinawatra, Given The Relative Inexperience of Many of The New Cabinet Members.

The Ppp Unveiled A Six-Party Coalition on January 19, Putting An End to 16 Months of Rule by The Generals Who Overthrew Thaksin and His Thai Rak Thai Party in The September 2006 Coup. Having Secured 65% of The 480 Lower House Seats, The New Coalition Was Able to Elect Ppp Leader, Samak Sundaravej, as Prime Minister. We Have Revised up Our Short-Term Political Ratings Accordingly, Taking The Overall Score up to 69.0, from 61.0 Previously. However, While A More Stable Political Environment Should Translate into Economic Recovery in The Coming Year, Some Key Risks Remain, Most Crucially The Return of Thaksin on February 28, Which Could Conjure up Intense Feelings in Both The Pro- and Anti-Thaksin Camps, Possibly Resulting in Significant Political Unrest.

We Believe That High Oil Prices and The Poor Outlook for The Us Economy Do Not Bode Well for The Maintenance of Thailand's Export Recovery. despite Higher Sales to India, Eastern Europe, Australia and The Middle East, Which Have Helped to Counter A Decline in Us Sales Growth, The Us Is Still Thailand's Second-Largest Export Destination behind The Eu, Consuming 13.0% of Thai Exports.

Given That We Expect Us Growth to Decline to 1.3% in 2008 (from An Estimated 2.0% in 2007 and 3.3% in 2006) and That Our Forecast for Global Expansion Is 4.1% (Compared with An Estimated 4.9% in 2007), Our Growth Forecast for Thailand in 2008 (4.8%) Is Slightly Less Optimistic than The Official Figure (5.0%).

The Main Challenges Facing The Business Environment in Thailand Centre around Its Deteriorating Market Orientation Credentials, Which Have Suffered Due to A Perceived Inability to Enforce Intellectual Property Rights (Ipr), and Poor Infrastructure Investment, as Investment Growth Continues to Lag behind Overall Gdp Growth. The New Administration Has Promised to Review The Government's Stance on Both Issues in An Effort to Restore Overseas Investor Confidence in The Thai Economy.

Consequently, We Are Expecting Changes to Be Made, on The One Hand, to Relax The Country's Investment Laws to Encourage Fdi and, on The Other, to Tighten Ipr Regulations in 2008.