Thailand's economic recovery is expected to continue at a moderate pace this year and next despite ongoing political uncertainty and tepid private investment, says Moody's Investors Service.
The country's sovereign credit rating remains at Baa1 with a stable outlook thanks to low public debt, price stability and how the political ambiguity has not affected robust government expenditure, said Christian De Guzman, a Singapore-based vice-president of the sovereign risk group at Moody's.
The international credit rating agency forecasts Thailand's GDP growth will expand by 2.8% in 2016 and 3% in 2017 as key challenges still stifle momentum. High household debt and domestic political uncertainty are weighing on private consumption together with the lack of structural improvements for the country's export-oriented manufacturing infrastructure.
Thailand has the highest domestic political risk among Asean countries rated by Moody's, reflecting the prevalence of military coups since the 1940s and repetitive changes in the constitution, said Mr De Guzman.
Political uncertainty might not be definitively resolved even if there is a general election based on the upcoming constitution, as political tensions prevailed in 2014 despite having a constitution in place, he said.
De Guzman: Thailand has the highest domestic political risk in Asean.
"Political stability would have to be demonstrated over a much longer period of time to convince us it has been restored as a result of any election," said Mr De Guzman.
A general election is deemed credit-positive to Thailand's sovereign rating as it indicates progress in attaining stability and boosting investor confidence, but by no means does it take political risks off the table, he said.
"The ultimate impact on Thailand's sovereign rating depends on whether this lower degree of political uncertainty leads to greater foreign direct investment (FDI) and investment in the domestic private sector," said Mr De Guzman.
He said a series of government stimulus policies had been effective in stabilising economic conditions but were unlikely to boost growth impetus beyond 3%.
"It is unlikely economic growth will be restored to 4-4.5% without getting the private sector involved," said Mr De Guzman.
"Political uncertainty is weighing on competitiveness whereas other countries such as Vietnam have moved into high-value-added electronics. Thai manufacturing seems to still be centred on lower-value-added electronics and automobiles," said De Guzman.
FDI flowing into Thailand plummeted last year, with total investment applications from foreign companies between January and November 2015 down 78% year-on-year to 93.8 billion baht, reported the Board of Investment (BoI). The BoI attributed the dip to new investment incentives, effective as of 2015, related to innovation and high-technology projects.
Domestic private investment is not expected to pick up considerably this year because of slow credit growth, lukewarm global macroeconomic conditions, an excess in domestic capacity utilisation and weak sentiment compounded by continuing political uncertainty, said Mr De Guzman.
Meanwhile, Siam Commercial Bank's Economic Intelligence Center (SCB EIC) raised its GDP growth forecast this year to 2.8% from 2.5% following better than expected first-quarter figures.
SCB EIC raised its public investment growth estimate significantly this year from 11% after the National Economic and Social Development Board (NESDB) announced government investment grew 12.4% in the first quarter, said chief economist Sutapa Amornvivat.
Two weeks ago, the NESDB announced stunning GDP growth of 3.2% for the first quarter, beating the research house's projection. The healthy expansion was largely underpinned by public spending, tourism and private investment.
Private investment for the period grew 2.3%, also beating SCB EIC's forecast of 1.2%.
Higher than expected tourism growth is helping to drive GDP growth this year. For the first quarter of 2016, exports of service and tourism grew 18.8% year-on-year, which influenced the SCB EIC's forecast revision.