“Socialist Republic of Vietnam” or “Vietnam” is one of the most attractive economy that investors around the world is seeking opportunity to invest owing to its political stability and rapid economic growth along with the population trend that is estimated to increase by 1 million a year while purchasing power of the Vietnamese population has increased greatly. Thailand and Vietnam form a part of ASEAN Economic Community or AEC and has long enjoyed amicable relation especially in term of commerce even though the two do not share border. This is the advantage for Thai operator to invest in Vietnam.
Vietnam has continually improved its trading and business landscape to comply with WTO such as lowering its tax, adjustment of its regulation, law, and government procedure, and market that has more variety and is more open to investment. This continues to gain Vietnam its foreign investment. However, as the economy develops toward more freedom, many rules and regulations were adjusted frequently to keep up with the policy.
Thai economy had enjoyed considerable growth in the first half of 2018, propelled by domestic and foreign demand. However, the driving force of demand in the latter half of the year had decreased significantly especially in export sector owing to the state of Trade War between The United States of America and China and other decelerating factor from trade partners economy. The effect of trade war will become clearer and will remain as a main hindrance to the growth of Thai economy this year.
The growth of export sector is expected to decelerate after a good performance in the past 2 years. Many analysts agree that the current Trade War will prolong and will affect the global economic growth and trade to the detriment of confidence in business and consumer sector. This will be especially true as many investor may refrain from further investment. Nonetheless, there are certain advantages to be gained from the situation for Thailand as some business had to relocate from China or source its supply somewhere else. However, the estimate revealed that this number will not be sufficient to offset the negative impact of the global trade deceleration. It is inevitable that Thai economy in 2019 will suffer from this deceleration as well – a similar fate shared by all in the region.
The tourism sector of the country gradually improves however. As Thai tourism had suffered a blow from Phuket incident in early 2018, the confidence of Chinese tourists toward Thailand had plumped significantly. However, Thai tourism shows signs of continual improvement after government’s effort to improve tourist’s safety and other incentivizing policy – leading to gradually improvement of popularity among Chinese tourists. The growth of tourists from other national is good and will continue to serve as a positive factor for 2019 as well. In spite of the above, the overloading use of Thai airport remains a main limitation to Thai tourism industry.
In 2018, the overall consumption from private sector continue to grow and had exceeded the initial estimation. Partially, this was due to the high growth in automobile consumption as the limiting condition from the “First Car Policy” has begun to expire for many. In the same light, the rate and the spread of employment has increased in many business sector and group – causing the purchasing power outside of agricultural sector to increase. This was also driven by many government’s effort to promote the service sector, especially among the low-income segment. For 2019, it is expected that the growth of automobile consumption will decelerate compared to the previous year. Many government policies will be carried forward to 2019 while the income in agricultural sector will remain in bad shape due to low product pricing, causing the overall consumption to decelerate.
Aftermath of the election and the continuity of government’s project are still the main attention point of the investor. It is undeniable that the protracted political conflict plagues the confidence among investors who might otherwise invest in Thailand. If the election in 2019 went well and many government’s projects are continued, these factors may improve investor’s confidence to an extent. 2019 is another important year marked by the government’s large investment project; the five double railway and the Eastern Economic Corridor: EEC. The uncertainty and lack of knowledge in procurement policy and procedure among suppliers which was a limiting factor for growth in the last year will improve and be more understood this year.
Investment in private sector seemed to have a good start this year. Thailand’s export continues to improve over the past 2 years while private consumption exceeds the expectation. As government’s Mega-Project take clearer shape, the investment among private sector also receive a boost as well. There might be a trend of shifting of investment in 2019 due to a protracted trade war and due to Thailand’s EEC development and further investment promotion policy, Thailand may have advantage edge over country in the region in becoming the alternate production base for some industry.
The rate of inflation will continue to stay low in the coming future. As inflation may rise due to the state of economic growth, the adjustment is gradual and is driven from the structural factor such as higher competition which led to limits in pricing. Inflation rate is also suppressed by the declining price of oil owing to the increased supply.
Overall, Thailand is expected to grow by 4% – a number relative to its potential. Even though Thailand may experience some deceleration due to the current state of foreign demand, the domestic demand from private consumption and investment will play a vital role in the country’s economic growth. The inflation rate is expected to remain in control. However, in the VUGA world, Thai economy will continue to face risks from both domestic and foreign source, along with the question of its financial stability that despite its current relatively good position, are exposed to certain risk from real estate and underpricing risks due to the exposure of prolonged period of low interest. It could be said that the year 2019 will be an “Easy-Not Easy” year for the Thai economy and finance whereas all the government sector responsible for the policy and the private sector must be prepared for the opportunity and risk presents.
Global economy continues to grow overall despite minor deceleration in some region. With strong economic basis, FED and ECB can continue with Monetary Policy Normalization in line with the plan. The global growth rate in the first quarter is higher than the average of past 2 years, owing to the growth of American and Chinese economy. On the other hand, Eurozone and Japan economy has seen small sign of deceleration. Overall, the global economy is in good condition due to an expansion of global trade. Unemployment rate is in its historical low in core countries and private investment improves gradually. In developed countries especially in the USA and Eurozone are entering the last phase of expansion in economic cycle, estimated from the slowdown in high economic growth, accelerating inflation rate, closing of output gap, and increasing interest rate. On the other hand, the developing countries and new market is still in the beginning or mid phase of expansion period in economic cycle. As reflected by the acceleration in economic growth and loose financial policy. The improvement of global economy this year is a continual development from last year, making the global financial landscape to return to normal. QE policy will actively take less prominent role and interest rate in many countries will rise which is in line with the economic cycle. This will cause the yield curve, a reflection of the financial cost, will gradually rise for both short-term and long-term interest despite that the interest will likely be lower than those during the Subprime crisis.
IEC forecast 3 major risks to the world economy in the coming future; the accelerating inflation that exceeds expectation, the geopolitical conflict in Eurozone and Middle East, and the US trade protection policy. The first risk to be aware of is the accelerating inflation due to low employment rate which will lead to increasing wage. This accompanied by increasing oil price will led to many central banks of each country to adjust its interest rate sooner than expected – leading to fluctuation in derivatives and investment market overall. The second risk is that of geopolitical conflict in Eurozone and Middle East such as the policy of the new government cabinet in Italy and Spain which will affect the state of finance of both countries. In addition, Brexit will play important role in the geopolitical development of Europe moving forward. Even though the risk to the financial stability in this region is lower than the same period last year, the political conflict in Italy and Spain still continue to undermine the confidence of investors and global finance. The prolonged geopolitical conflict of Middle East such as Syrian War, Qatar diplomatic crisis, and US-Iran boycott will continue to effect the price of consumer goods. The last risk is the US trade protection policy and retaliation from its trade partners which its extent and effect will remain unclear. Even though it is unlikely that the risk will develop into an all-out global economic war, the industrial sector and export sector in the affected countries should closely follow any development to evaluate potential risk.