Thailand's economy is much more vulnerable than those of other Asean nations to a significant growth correction in China, according to Moody's "Inside Asean" report, which was released on Wednesday.
In the latest issue, credit-rating agency Moody's Investors Service has assessed the regional implications of a growth correction in what is the world's biggest economy, and has concluded that Asean member states are vulnerable to a pronounced correction in what is now the region's largest trading partner. In aggregate, Asean exported 12.2 per cent of its total outbound shipments to China last year, up from just 7.3 per cent a decade earlier.
A sharper downturn in Chinese economic growth this year and next than factored into the rating agency's baseline projection of 6.5-7.5 per cent would, therefore, have a significant bearing on Asean's economic growth.
Such a slowdown in China would further heighten domestic woes in Thailand. Similar to the rest of the region, Thailand would feel the impact of an acute slowdown in China primarily through its trade linkages, with exports to the mainland accounting for 6.9 per cent of last year's nominal gross domestic product.
However, Thailand is further exposed given the weakness in its domestic economic fundamentals on the back of the ongoing political crisis. With this in mind, the added effect of a China growth shock would both heighten and prolong Thailand's ongoing growth malaise, Moody's said in the report.
That said, Asean member states' demographics would support their economic growth, with a young and rapidly growing middle-class population boding well for economic growth in the region. Specifically, it means a large labour force and attractive domestic market potential.
Although all Asean countries, with the exception of Thailand, will see their labour forces increase, marked differences exist in terms of projected growth. According to the World Bank, the labour force in Asean will increase by 16 per cent between 2012 and 2025. The labour forces in Laos, the Philippines and Cambodia, for instance, are projected to grow by more than 20 per cent, while Vietnam's will increase by only 7 per cent.
However, Moody's affirmed Thailand's long-term issuer ratings at "Baa1" with a stable outlook, as released on June 2.
The affirmation is based on the view that the Kingdom's fundamental credit strengths remain largely intact despite ongoing political problems.
The stable rating outlook reflects the expectation that the recent military coup and the lingering political uncertainty will not undermine Thailand's credit strengths to a material degree over the next 12 to 18 months. Moody's also affirmed the supported ratings of the Thai banks with a stable outlook.
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