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Moody’s Says Weakening FDI Weighing on Thai Growth
Moody’s Says Weakening FDI Weighing on Thai Growth

Moody’s Says Weakening FDI Weighing on Thai Growth

Moody’s Says Weakening FDI Weighing on Thai Growth

Thailand’s political uncertainty has eased over the past year, a development that could help the current cyclical recovery, according to a ratings agency.

But domestic demand remains lackluster despite the continued accommodation of monetary and fiscal policies, says Moody’s Investors Service, TNA reported.

The country’s competitiveness has eroded in recent years, as reflected in weakening foreign direct investment. In 2016, gross FDI reached its lowest level since at least 2005 in both dollar terms ($7 billion or 56.4 billion baht) and as a share of GDP (0.4%).

In part, this reflects the emergence of other countries in the region as more attractive places for investment in certain areas production, despite Thailand’s advantage in the quality of its infrastructure, the international ratings agency said in a just-released annual credit analysis.

This weakening FDI, combined with a rapid ageing of Thailand’s population and human capital development issues, is weighing on economic growth. In response, the government has introduced a number of policies to improve competitiveness, but these initiatives are subject to considerable implementation risks.

Moody’s said Thailand’s credit profile (Baa1 stable) balances the country’s strong fiscal position and low external vulnerability against lower-than-average growth since 2013.

The report elaborates on Thailand’s credit profile in terms of economic strength, high; institutional strength, high; fiscal strength, very high; and susceptibility to event risk, moderate. These are the four main analytic factors in Moody’s Sovereign Bond Rating Methodology.

Moody’s expects Thailand’s real GDP growth to recover to 3.4% in 2017, its highest rate since 2012. This is in line with, or slightly above, Baa-rated sovereigns, but remains low compared with Thailand’s long-term average growth rate and with those of other developing Southeast Asian countries.

Since 2015, fiscal policy, particularly government investment spending on infrastructure, has supported growth. But private sector demand has been subdued for a prolonged period. Businesses have been reluctant to invest because of industrial overcapacity and political uncertainty, while households have been constrained by the previous build-up in indebtedness.

In terms of event risk, while some issues have receded, the underlying tensions that have contributed to political turmoil since 2006 have not been resolved and Thailand still faces elevated domestic political risks relative to its peers. Moody’s expects a successful transition to a stable civilian government to lead to greater political stability.

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