Domestic sales of passenger cars are expected to rise by 2% this year, marking a recovery after four years of decline, with support from an uptick in economic growth and an increase in private consumption, says BMI Research.
Additional factors contributing to a recovery in Thailand's new-car market include subdued inflationary pressure and a stable interest rate environment, all of which bode well for growth in consumer spending.
"We believe that one of the main drivers of recovery for the Thai car market will be an uptick in economic activity, which will support growth in household spending as consumer confidence levels pick up," BMI said. "Our Country Risk team forecasts real GDP growth of 3% in 2017, up from an estimated 2.7% in 2016, driven by reduced political uncertainty and the government's ongoing infrastructure drive."
Low inflation is also expected to benefit Thai consumers.
"Growth in the passenger car segment will be aided further by growth in consumer spending as a result of weak inflationary pressure and a stable interest rate environment. Given these factors, we forecast private consumption to expand 3.6% in 2017, up from an estimated 2.9% in 2016," said BMI. "Our Country Risk team forecasts inflation to average 1.5% in 2017, up from an estimated average of 0.3% in 2016, as global oil prices continue to recover.
Despite this uptick in price growth, inflation will remain well within the central bank's 1-4% target range. While rising inflation will erode some consumer purchasing power, BMI believes it will only have a mild effect. This means that it should not have a significantly negative impact on the positive outlook for passenger car sales growth in 2017, said BMI.
Further lending support to growth in private consumption will be a stable interest rate environment, which will help drive growth in auto loans, which stood at 22.7% of total loans in the third quarter of 2016.
The Bank of Thailand is expected to keep its benchmark interest rate at 1.5% in2017.
"The combination of a stable interest rate environment and muted inflationary pressure will ease pressure on household and business budgets and help Thai consumers afford vehicle financing," said BMI.