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Fitch cagey on sovereign

Modest GDP growth undercuts Thai rating

Leaflets touting quick loans abound in Bangkok. Economists see high household debt as a challenge to Thailand's growth outlook. WEERAWONG WONGPREEDEE

Thailand's subpar economic growth is the main obstacle to the country's sovereign rating improving, says Fitch Ratings.

It is quite difficult for Thailand's long-term foreign and local currency issuer default rating, which stands at BBB+, to be raised if the country's economy continues to expand at around 3%, said Andrew Fennell, director of Asia-Pacific sovereign at Fitch Ratings Hong Kong.

The international credit rating agency has maintained Thailand's outlook at stable.

The second-largest economy in Southeast Asia has seen growth fall below 4-5% since 2013.

High household debt and adverse demographic trends have continued as challenges to the country's medium-term growth outlook, though economic growth has picked up, Mr Fennell said.

Thailand's ratio of household debt to GDP has risen since 2008, in line with other Asia-Pacific countries.

The high household leverage has been a drag on Thailand's domestic consumption and economic growth.

The household debt level of most Asia-Pacific economies is above the average G20 level. China's household debt increased by 27 percentage points from 2008 to 2016, followed by 25 percentage points for Thailand, 21 percentage points for Malaysia and 19 percentage points for South Korea.

Thailand's household debt rose almost 80% to 11.5 trillion baht at the end of March from 6.41 trillion at the end of 2010, according to central bank data. The household debt ratio surged to 78.6% at the end of March from 59.3% at the end of 2010.

In 20 Asia-Pacific countries under coverage of the credit rating agency, only three -- Indonesia, the Philippines and Vietnam -- have been assigned a positive outlook. The sovereign ratings of Indonesia and the Philippines are at BBB-, while Vietnam is at BB-.

Nevertheless, the prospects of rising US interest rates, slowing growth in China and rising protectionism represent some of the top global risks, with potential spillovers to Asia-Pacific countries, Mr Fennell said.

Political factors in Thailand due to the military-backed government will have no direct impact on foreign investment, but indirect effects on investor confidence, especially private investment, could be seen, he told a seminar yesterday.

Meanwhile, Predee Daochai, chairman of the Thai Bankers' Association, said the government's economic roadmap, particularly the Eastern Economic Corridor and digital economy policy under the Thailand 4.0 model, will help the country's economic expansion reach its full potential.

The National Economic and Social Development Board has revised up Thailand's economic forecast for 2017 to 3.7% and to 5% next year.

The Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) is set to revise up the country's GDP growth target next month after exports showed stronger-than-predicted growth during the seven months to July.

Mr Predee said the 8.2% export growth recorded in the first seven months of the year was higher than the committee had estimated. As a result, there is a strong possibility that the business leader group will raise its projection for both economic and export growth.

JSCCIB forecasts the country's GDP growth in a range of 3.5-4% this year.

"We need to consider whether the stronger baht will have a significant impact on exports amid the global economic pickup," Mr Predee said.

The baht has gained at a faster clip than Asian peers, up 8% year-to-date.

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