Economy bottomed out; GDP to grow

THAILAND's economy is largely export-dependent. The country is significantly recovering back from the impact of global meltdown that contracted country's economy in earlier phase due to the severe contraction of major trading partners' economies. The International Monetary Fund maintained that supportive fiscal and monetary policy will be needed to limit the contraction in consumption and investment. Assuming that there are no major shortfalls in policy implementation, and that political stability is maintained, the fall in GDP growth could be contained to a range of between -2 and -4 percent, the Mission pointed out. In mid-term perspectives, the IMF Mission projects a gradual recovery led by exports and government investment with private investment following. Public investment is expected to make a major contribution to GDP growth over the next few years, as much-needed infrastructure projects are undertaken. Over time private investment will be crowded-in and private consumption will recover in line with rising income. The investment-to-GDP ratio should rise substantially over the medium-term, while remaining well below historical highs. 

Meanwhile, boosted by better-than-expected economic growth late this year, Thailand's Ministry of Finance has revised upward its economic expansion estimate for this year and next year. The Ministry expects the Thai Economy to improve in 2009 and 2010 from previous forecast at -2.8 percent in 2009 and 3.5 percent per year in 2010, due to government stimulus measures, revivals in private spending as well as the global economy. 

The country's economy has already bottomed out and the GDP is expected to grow 3% next year, according to Finance Minister Korn Chatikavanij. He projected that the Thai economy in 2010 could likely expand by 3% or possibly well thrive between 4-5%. He said however next year's growth could be hampered by two major factors namely the fragile global economy and the ongoing political tension in the country. The government would launch more economic stimulus packages in2010 to strengthen the nation's economic system. The measures include 3G network expansion, tax-related incentives and establishment of a national savings fund.

Director-General Satit Rungkasiri of the Fiscal Policy Office said the upward economic growth revision stemmed mainly from the effective state-supported economic stimulus package, private consumption recovery, improved global economy, particularly economies of Thailand's trading partners, and tourism turnaround. The economy next year would be driven by faster budget disbursement under the Thai Khem Keng (Strong Thailand) scheme. Should the annual budget be disbursed by 50 per cent, he said, the country's gross domestic product (GDP) would grow up to 3 per cent, but if the budget were disbursed by 80 per cent, GDP would expand 3 per cent. 

In addition, the economy will also be boosted by expanding consumption and the world economic recovery, as well as higher incomes earned by farmers, and the reduced unemployment. However, there remain some risk factors that need be monitored including the fragile global economic recovery, higher product prices, and delayed resolution of the Map Ta Phut case. Domestic political conflicts continue as a key risk factor that could affect consumer spending recovery.

Economy 2009

The Thai economy in 2009 is forecasted to contract by -2.8 percent per year, improve from earlier September projection of -3.0 percent per year. Despite the sharp contraction during the first three quarters of the year as a result of the global economic crisis, the Thai economy in the last quarter is expected to grow positively compared to the low base of last year, with contributing factor from increasing public spending, as reflected by public consumption growth in 2009 projected to accelerate to 7.6 percent per year compared to 4.6 percent per year in 2008, and public investment growth projected to increase to 2.6 percent per year, from the contraction of -4.6 percent per year in 2008. Furthermore, the faster-than-expected of Thailand's trading partners' economy would help boost export volume of goods and services in the last quarter to grow, making the annual export volume less than previously forecasted shrink to a high rate of -13.0 percent per year. Import volume of goods and services, on the other hand, is forecasted to decline by -21.5 percent per year,slow recovery private as well as political uncertainty, and the suspension of investment projects in Map Ta Phut Industrial Estate area, private investment is projected to , by -12.7 percent per year, while private consumption is projected to slightly contract at -1.3 percent per year.

Internal economic stability is expected to improve with gradual decrease in headline inflation. Thailand 's headline inflation for 2009 declined 0.9 per cent year-on-year but soared 3.5 per cent last month, according to Bank of Thailand (BoT) deputy governor Atchana Waiquamdee. Core inflation rose 0.3 per cent in 2009 year-on-year and edged up 0.2 per cent in December 2009. According to her, last year's inflation was within the Monetary Policy Committee's projection even though it was above target at some point due to the government's measures to ease people's spending.Inflationary pressure for 2010 would depend on the domestic and global economic conditions together with the spending and consumption figures, she maintains.(Source: Bangkok Post)

Unemployment rate has revert to the normal rate ofan improving trend of 1.6 percent of total labor force,, as the re-employment following economic recovery in the latter half of the year.As for external stability, current account in 2009 is projected to record a large surplus of 8.1 percent of GDP, as trade balance reaches the high surplus of 20.4 billion US dollar. This large surplus is due to the greater fall in import value relative to export value. Import value is forecasted to contract from the high base of last year to -25.9 percent per year, while export value is projected to decline at -14.8 percent per year. 

Economy 2010

The Thai economy for 2010 is forecasted to expand at 3.5 percent per year (or within the range of 3.0 - 4.0 percent per year), upwardly revised from the September 2009 projection at 3.3 percent per year. The major drivers are expected to come from the stronger economic recovery towards the end of the year 2009 and thewith the expansionary fiscal and monetary policies continuing from late 2009 from public sector capital expenditures under the “erThai Khem Khaeng” planthe major drive, alo. Public investment is thus forecasted to accelerate to 7.4 percent per year (or within the range of 6.4 – 8.4 percent per year), while public consumption in 2010 is projected to expand at the rate of 3.9 percent per year (or within the range of 3.4 – 4.4 percent per year). 

The Electricity Generating Authority of Thailand (Egat) aims to cut power consumption by 1,900 megawatts by 2012 through a campaign to improve the efficiency of electrical equipment, says Wirash Kanchanapibul, deputy-governor for corporate social responsibility. The new target represents a 30% reduction in consumption by electrical equipment such as lightbulbs, electric fans, air-conditioners and refrigerators, up from 10% now.

In addition, the the major factors that would drive the Thai economic growth include increasing household income in tandem with domestic economic recovery, a decline in unemployment rate to its normal level, increasing farm income following rising global agricultural prices that helps to support private consumption. Private consumption is forecasted to grow at 3.3 percent per year (or within the range of 2.8 – 3.8 percent per year). Private investment in 2010 is projected to expand as the public investment under the “Stronger Thailand 2012” program would cause a crowding-in effect to private investment. This, combined with expected low interest rate environment, would help support private investment to from the low base in 2009 to 8.0 percent per year (or within the range of 7.0 – 9.0 percent per year.)

Meanwhile, export volume of goods and services in 2010 is forecasted to grow at 8.0 percent per year (or within the range of 7.5 – 8.5 percent per year), as the economy of Thailand major trading partners continue recover, especially among Asian markets relative to other marketss, along with . The growth of import volume of goods and services is projected to accelerate to 17.4 percent per year (or within the range of 16.9 – 17.9 percent per year), as a result of the recovery of domestic spending and increasing manufacturing of the rise in export.

Meanwhile, Thai Garment Manufacturers Association (TGMA) strongly belives that the World Cup Football in South Africa (from June 11 to July 11) would provide a big boost to the export sector. Thailand 's exports, particularly textiles, garments, sports shoes and leather goods, are expected to gain this year thanks to the World Cup. said Wallop Witanakorn, Secretary-General of the Association expects that football mania to help lift Thailand 's garment shipments in 2010 to grow in a range of 10 percent to 15 percent to US$3.5 billion." Garment shipments were estimated at only $3.1 billion in 2009, a contraction of 15 percent in light of the global economic crisis, with exports of textiles estimated to have fallen 8 percent to $3.4 billion.

Textile exports are projected to resume growth of 10 percent in 2010, according to the association's forecast. According to Mr Wallop, the key markets would remain the United States (40% of shipments), the European Union (28%), Asean (15%) and Japan (6-7%), while other markets would make up the rest.

Shipments to ASEAN were expected to see remarkable growth in 2010 thanks to tariff elimination under the Asean Free Trade Area Agreement that took effect on Jan 1. Japan will also offer a promising market, as Japanese importers are now buying from Asean instead of China to get higher-quality products and benefit from tax privileges, especially under the Japan-Thailand Economic Partnership Agreement (JTEPA). The free trade agreement between ASEAN and China is also expected to improve Thai garment exports.

However, TGMA Secretary-General sounded a note of warning about labour shortagethat would remain a major challenge for the industry, as recent increases in the prices of agricultural products have encouraged workers to shift from the garment sector to farming. the current manpower shortage is estimated at 30,000. The industry employs 400,000. (Source: Bangkok Post)

In terms of internal economic stability, headline inflation in 2010 is projected to riserise to 3.4 percent per year (or within the range of 3.0 – 4.0 percent per year), as the global oil and agricultural prices are expected to rise following the recovery of the global economy. Unemployment rate is expected to resume its normal level at 1.3 percent of total labor force (or within the range of 1.0 – 1.5 percent of total labor force.) As for external stability, current account is projected to fall, yet still record a surplus of 3.3 percent of GDP (or within the range of 2.7 – 3.7 percent of GDP.) This is due to the fall in trade surplus to 7.8 billion USD (or within the range of 6.8 – 8.8 billion USD), as the value of import grows at the faster pace than export value. Export value is projected to grow at 15.5 percent per year (or within the range of 14.5 – 16.5 percent per year) following the revival of the global economy and the rise in export price. Import value is forecasted to grow at 27.7 percent per year (or within the range of 26.7 – 28.7 percent per year), as domestic demand speeds up and import price rises. 

The Thai economy in 2010 is expected to show an improving trend, with the positive factors coming from revival among Thailand's trading partners that would support higher export, and an acceleration of public investment under the “Stronger Thailand 2012” program. Furthermore, domestic spending is also expected to improve from higher farm income following the rise in global agricultural price and back-to-normal employment situation. Nevertheless, risk factors associated with the recovery of the Thai economy come from the fragility of global economic recovery, higher commodities price as a result of higher global oil price, and political situation that might delay the recovery in private sector. Consequently, public sector still has to continue accelerating budget disbursement in line with the target at the time when private sector does not yet fully recover, and promote the role of the private sector to be the main engine of Thailand's economic growth in the near future.

Sources
(1) Ministry of Finance, Government of Thailand
(2) Fiscal Policy Office
(3) Speech of Finance Minister Korn Chatikavanij
(4) Director-General Satit Rungkasiri of the Fiscal Policy Office
(5) International Monetary Fund, World Bank&  Asian Development Bank.
(6)ThaiBank
(7) Bangkok Post