Thailand's business sentiment index edged up to 48.6 in May

Some encouragement, at last.

According to DBS, business sentiment index inched higher to 48.6 while capacity utilization rebounded to 61.4 in May (from 44.3 and 56.4 respectively in April).

Here's more from DBS:

The June numbers are probably going to be more crucial in measuring post-coup sentiment among local businesses, but the May numbers are rather encouraging in any case. Still, it is hard to say with strong conviction that we are going to see a sustained turnaround from now onwards.

We had some false signs of recovery back in March, when both these two indices also posted a decent bounce. Arguably, with the military
government in place, businesses have some political certainty right now, as compared to the condition in March.

Yet, with export growth staying lukewarm, manufacturing production was still falling as of May. The government’s expansionary fiscal policy may provide a boost to domestic demand in the near-term but it remains to be seen how long this can be sustained.

Despite the dire state of domestic demand, at the very least, core inflation is no longer falling. In fact, it is likely to have inched up to the 2% YoY mark in June (data due today). At this juncture though, we still think that there is still a long way for domestic demand to return to its near-term potential.

Our GDP growth forecasts remain at 1.6% and 3.8% for 2014 and 2015 respectively.

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