Moody’s Investors Service has changed the outlook on Thailand’s Baa1 local and foreign currency government bond ratings to stable from negative.

Moody’s decision to change the outlook was prompted by the robust economic recovery and the stabilisation of government finances despite continuing domestic political turmoil. “The government of Thailand has capably steered the economy through a major external economic shock, and a potentially destabilising domestic crisis,” said Christian de Guzman, assistant vice president and Moody’s lead sovereign analyst for the country.

Since 2006, foreign exchange reserves have nearly trebled to US$169 billion dollars in mid-October 2010 on the back of persistent current account surpluses and large capital inflows more recently. External debt levels have remained manageable as both the government and the private sector have largely been able to meet their financing needs onshore.

Downside risks persist as the economy continues to be heavily reliant on external demand for its goods exports, as well as tourism receipts. There are also a number of potential triggers for further political turmoil in the near to medium-term, including forthcoming court decisions, key anniversaries of political violence, and parliamentary elections to be held before November 2011.

Uncertainty surrounding the political situation could defer private investment, which has been accelerating at a rapid rate recently, according to an economic

Produced by Moody’s Economy.com, a division of Moody’s Corp, the research said lower investment and fewer foreign direct investment inflows could nevertheless be the protests’ largest economic legacy.

“Not only will it lower construction and capital spending now, it will also lower future production capacity. Thailand’s economy has had the ability to brush off political turmoil relatively well in the past, which could be the case again this time. Even so, March’s indicators will suggest what can be expected in April and in future months if the turmoil continues,” it said.

The research was released today, while another subsidiary of Moody’s Corp, Moody’s Investors Service, will next month review its rating for Thailand.

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