Thailand Infrastructure Report Q4 2008

Industry Forecast Scenario BMI forecasts that Thailand's construction industry will grow at an annual average of 5.1% in real terms over the period 20082012. In 2008, we predict that the construction industry will undergo real growth of 5.8%. This represents a moderate downward revision from the 9.1% we had predicted for 2008 earlier this year, but is still faster than the estimated 2.4% witnessed in 2007. A fiscal stimulus package, together with higher public investment in infrastructure (particularly railways) should support the outlook for the construction industry over the mediumterm in Thailand. We have revised down our 2008 forecast for the construction sector because of the inclement external environment, amid an intensification of the financial crisis in developed markets in September 2008. We have also revised down our 2009 forecast slightly for real growth in the construction sector, to 5.0%, from 5.2%.

There is concern however that the fiveyear plan could strain public finances. The programme includes construction of mass transit systems for Bangkok and its satellite towns at a cost of THB556bn (US$13bn). Other projects include 450,000 new public housing units, spending on education and health, and improvements to marine and air transport infrastructure.

Risks to our forecasts are largely to the downside, particularly in 2009. The external threat generated by the financial crisis in developed markets is the main risk factor, with much depending on how prolonged the crisis is and how long corporate borrowing rates remain at prohibitive levels. In the worst case scenario, a prolonged recession in the US and elsewhere would severely crimp Thailand's export growth, GDP growth and government revenues, with attendant implications not only for commercial construction in the country, but also public investment and infrastructure tenders.