Meanwhile, despite the Thai economy experiencing increasingly severe flood damage, GDP growth accelerated to 3.5% y/y in Q3 from 2.5% y/y in 2Q. This did not prevent the Thai government from cutting its growth forecast for 2011 with the release of 3Q GDP data to 1.5% from 3.5-4.0% back in August. This growth forecast for 2011 thus assumed Q4 contraction around -3.2% y/y, the first negative reading since Q3 2009. Thailand manufacturing production index dropped -35.8% y/y in October, the largest decline since January 2000. Although resumption of production has been seen at some factories, it will still take several months to resolve the flood damage in the industrial complex, and 2011 growth could be even lower than the government forecast.

No surprise then that the Bank of Thailand cut its policy rate by 25 bp to 3.25% on November 30, in response to the rapid economic downturn. Moreover, BOT revised its growth forecast downward to 1.8% from 2.6% in late October (which was cut from 4.1% previously). Note that BOT announced that further rate cuts could be seen if the restoration and revival from flood damage run into difficulties. Inflation pressure is expected to come mainly from food prices going into the first half of 2012. The emergency import of necessaries into Thailand could help keep inflation down. CPI in November rose 4.19% y/y, steady from October.

Eoin Treacy's view The US Dollar broke out of an almost yearlong base in October, found support in the region of the 200-day MA on successive occasions since and hit a new recovery high today. A sustained move below THB30.7 would be required to break the progression of higher reaction lows and question potential for additional upside.

Baht weakness will be welcomed by Thailand's exporters and has likely contributed to the outperformance of the stock market in local currency terms over the last few months. The SET Index rallied impressively between October and December but has lost momentum somewhat over the last couple of weeks. It needs to continue to hold above the 1000 area if the short-term upside is to continue to be given the benefit of the doubt.