Thailand to achieve 5% GDP growth in 2013

Check out what the key growth drivers will be.

According to DBS, growth in 2013 will remain strong; it maintains its above-consensus GDP growth forecast of 5% for 2013. Much of the pro-growth policies that the government introduced in 2012 remain in place and real income should continue to rise at an above average rate this year. This will set the stage for robust private consumption expenditure (PCE).

DBS also notes, long-term infrastructure spending (flood-related and transport-related) is set to take place in a meaningful way this year. While execution risks remain, the available infrastructure projects should boost investment after a decade of stagnation. With a low public debt load, the wider budget deficits should not threaten the overall fiscal position in the short term.

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PCE is set to get another boost this year as the authorities maintain their progrowth stance. Looking back at 2012, three policies come readily to mind. These include the increase of minimum wages to THB 300/day for seven provinces including Bangkok in April (other provinces also saw increases in minimum wages), the first car buyer rebate scheme and the rice pledging scheme (which guarantees crop prices for farmers).

For 2013, the THB 300/day minimum wage has been rolled out to the remaining provinces and THB 405bn has already been allocated to the rice pledging scheme (up from THB 300bn in 2012). The first car owner scheme has been discontinued. However, only 500,000 out of the 1.25mn vehicles have been delivered, implying that some positive spillover should show up in the production numbers in 1Q.

As such, 2 out of 3 government policies strongly supporting PCE growth are still in place for 2013. For consumption to increase, real income has to go up and this depends on nominal wages and inflation. Nominal wages have been pushed up significantly with hikes in minimum wages. On a population-weighted basis, minimum wages rose by close to 40% in April 2012 and by another 19% in January 2013. This pace of increase has not been seen over the past decade. 

To put things into perspective, minimum wages have about doubled since 2008, with the bulk of gains taking place over the last nine months.Unsurprisingly, average wages have also trended up accordingly. In the six months ending October, wages rose by an average of 11.2% YoY, much higher than the five-year average of 6%.

With inflation staying contained (due in part to administrative measures) over the last few quarters, real wage growth accelerated to a peak in mid-2012 and is still hovering at close to 8% as of October. The increase in spending power brought a 5.6% YoY increase in PCE in 2Q12 and 3Q12. Full-year 2012 PCE growth figure should reach 5.7%. To be sure, the pace of real wage increase is not going to match those seenover the last 6-9 months, but gains should still be sizable.

In weighted terms,the minimum wage increase in January is not as large compared to the hike in April 2012. However, at 19%, this figure is still much higher than what was seen over the past decade. Inflation, it should rise to 3.6% this year from 3% in 2012, which would moderate real wage gains. Still, 2013 gains are likely to far surpass the 1.5% average gain seen in the decade prior to April 2012 (when minimum wages were hiked sharply).