Weak external environment catches up Thailand

The Bank of Thailand's August economic report states, the country's domestic demand stayed largely within its recent range, external conditions remain weak and other domestic indicators are modest.

The slowdown is concentrated in exports and manufacturing production activity, with modest weakening also seen in nonresident consumption following the explosions in Bangkok. Government spending remains a pillar of support, but it is only likely to be a mitigating factor, as rural incomes and urban consumption continue to underperform.

Even with poor domestic and external growth, Bank of Thailand is expected to remain on the sidelines. In its latest policy statement, BoT affirmed its stance as sufficiently accommodative, and we think a weaker THB lengthens period during which the central bank can remain on hold. 

"However, if the country's growth slows further, the risks of further accommodation will rise. We recently lowered our growth forecast to 2.7% for 2015, and continue to flag downside risks to the forecast, given risks of moderation in tourism and poor weather conditions", says Barclays.