A strong financial sector, sustainable public finances and other fundamental strengths will help the Thai economy to withstand market volatility due to the European debt crisis, says David Riley, the group managing director at Fitch Ratings.
"Thailand is very well placed to absorb the EU financial shock, as the direct financial risk to the euro zone is very limited," he said yesterday at Fitch Ratings' annual economics conference in Bangkok.
Thai banks' claims to the euro zone are very low relative to countries such as Malaysia and Australia, mitigating the risk of debt defaults.
And while Thai exports will be affected by declining demand, Europe accounts for a smaller share of total exports when compared with other countries in the region.
Mr Riley said Thailand's external balance sheet is also strong enough to shield the economy from global shocks, although a global downturn would have a certain impact.
The worst-case scenario would involve a severe cutback in US government spending due to the "fiscal cliff" scenario in which Congress is unable to agree on cutbacks to spending.
Other key risks include further deterioration for the euro zone and a "hard landing" for the Chinese economy.
But Mr Riley said Fitch deems the three scenarios as unlikely, and forecasts a "soft landing" for the Chinese economy.Mark Young, Asia-Pacific head of financial institutions for Fitch, said risks for the region's financial sectors have risen due to the European crisis and slowdown in Chinese growth.
He said countries such as Indonesia, Sri Lanka and Hong Kong are ranked by Fitch at level three in terms of macro risk indicators, indicating high vulnerability to potential systemic stress.
Thailand on the other hand is ranked level 1, showing low vulnerability.
"We expect no change for Thailand for the macroprudential risk indicators," said Mr Young, adding that while rapid loan growth has led to a rise in the loan-to-deposit ratio for Thai banks, asset quality remains strong.
Finance Minister Kittiratt Na-Ranong said he hopes Thailand's solid economic fundamentals will help credit agencies such as Fitch revise up their ratings.
"I believe that the Thai economy is solid enough for a better rating," he said.
Thailand is currently rated BBB with a stable outlook by Fitch Ratings.
He said Thai economic growth this year of 5.5% was a strong performance considering the weak global environment, and pointed to strong domestic consumption, foreign direct investment and higher government spending as factors helping offset the negative impact of lower exports.
Thailand also remains committed to fiscal stability, with the fiscal 2014 budget expected to forecast a deficit of 225 billion baht, down from 300 billion in the current budget.
Later, Mr Kittiratt urged state agencies to accelerate their investment plans, noting that disbursement in fiscal 2012 ending last month was just 66% of planned expenditures, well below a target of 72%. For the current fiscal year, the government has set a target disbursement rate of 75% for investment programmes.
The government has budgeted 458 billion baht in funds for public investment under the current budget, with another 557 billion in investments planned by state enterprises.
Ministries yesterday were also urged to accelerate spending of funds allocated to programmes such as village investment funds.
Mr Kittiratt said state agencies were also directed to eliminate obstacles to investment programmes including issue such as tax, work permits, financing and labour regulations.
The Board of Investment would also consider ways to improve incentives for Japanese in light of the political conflicts between Japan and China.
(Source : Bangkok Post)