- Production side:
Agricultural sector in the fourth quarter contracted by 3.3 percent, mainly due to the outbreak of mealy bug in cassava plantations and heavy damage in planting areas caused by wide coverage of flood. This ultimately resulted in the production of cassava, oil palm, sugarcane and paddy to fall by 25.0, 22.5, 5.7 and 5.7 percent respectively. Following a fall in supply, both domestic and international, while demand remain high, crops price expanded significantly by 25.7 percent owing to the increase in prices of cassava, oil palm, rubber and maize by 71.9, 59.0, 54.0 and 31.7 percent respectively. Livestock prices in the fourth quarter expanded by 3.9 percent down from 7 .4 percent in the preceding quarter, partially a result of an increase in livestock supplies in response to high livestock prices evident in the past three quarter. Fishery prices have expanded by 6 .9 percent, caused by shortage of shrimps supply in the world market. In addition, the limited supply of shrimps was a result of epidemic disease in Indonesia and oil leak incident in the Gulf of Mexico. The rising of agriculture price has improved farm income by 19.4 percent in this quarter. In conclusion, the agricultural sector in 2010 contracted by 2.2 percent and the farm income increased by 24.0 percent, while farm income increased by 24.0 percent
Manufacturing Sector expanded at a slower pace by 4 .8 percent, compared to an 1 1 .6 percent expansion in the previous quarter. The main engine of growth for the fourth quarter were motor vehicle industry, electronic industry, tires industry, cement industry and polymer industry, which grew by 21.4, 12.8, 6.1, 7.0, and 23.5 percent respectively. As the result of (1) sale order remain strong following the recovery of domestic and international economy, (2) Map Ta Phut dispute have been partially settle with clear directions for issuing operating permits to industrial projects, and (3 ) Implementation of Stimulus Package by the government, such as farm income insurance scheme and speed up of public investment on basic infrastructure.
However, the risk factors opposing prospect of manufacturing were (1 ) Shortage of labor in motor vehicle industry, textiles industry and electronic industry, (2) Shortage of raw material in seafood industry, and (3 ) Rising of production cost especially in raw materials, energy and operating cost.
The Capacity utilization in the fourth quarter was at 63.6 percent improved from 60.8 percent in the same period of last year. The major industries which employed capacity utilization above 80 percent were upstream chemical industry (82.6 percent), plastic production industry (98.5 percent), rubber products industry (89.2 percent) and motor vehicle industry (84.7 percent). In 2010, manufacturing sector expanded by 13.8 percent.
Construction Sector grew by 6.6 percent, increased from 5.2 percent in the previous quarter. This was mainly a result of acceleration of public construction, which expanded by 3.6 percent compared to 0 .1 percent in the previous quarter. On the contrary, the private construction expanded by 9.4 percent slowed down from 12.8 percent in the previous quarter. Accordingly, the total permitted area for construction contracted by 23.7 percent. In particular, construction of residential and commercial building declined by 15.9 and 52.9 percent respectively due to concern of over supply in residential market and high base case in the previous quarter. The price of construction index grew by 2 .1 percent, the fourth-consecutive-quarter expansion, following an increase in iron and steel, and wood and wood products prices by 4 .4 and 4.1 percent respectively. However, price of cement and concrete products slowed down by 3.5 and 0.4 percent respectively. In 2010, construction sector expanded by 6.8 percent.
Real estate sector expanded by 2 .1 percent. Such expansion was mainly driven by an increase in demand for residential property, which reflected in an expansion of 9.2 percent in housing loan. Furthermore, condominium purchasers speeded up their ownership transfer process in order to avoid tighter Loan to Value (LTV) ratio imposed by Bank of Thailand (effective on January 1st, 2011). As a result, ownership transfer of condominium grew by 4.6 percent compared to the same period of last year and expanded by 88.5 percent compared to the previous quarter. Moreover, the real estate price index for both single house and townhouse expanded by 6.0 and 3.6 percent, respectively, due to soaring price of construction materials. The price of land grew by 2 .0 percent, after an expansion of 2 .1 percent in the previous quarter. In 2010, real estate sector expanded by 3.8 percent.
Hotels and Restaurants expanded by 7.9 percent compared to the same period of last year. The number of inbound tourists in this quarter stood at 4.6 million persons, accelerated from the previous quarter by 7.8 percent. This improvement was due to increased number of tourists from Asian countries particularly India, South Korea and China by 46.2, 41.1 and 26.6 percent respectively. As a result, the average occupancy rate in this quarter registered at 54.1 percent, up from 38.9 and 46.7 percent expansion in the second and third quarter of 2010.
Nevertheless, the number of tourists from United Kingdom and Germany continued to decline since the second quarter of 2010, as a result of an ongoing impact from economic crisis in Europe. In 2 0 1 0 , the total number of inbound tourists registered at 1 5 .8 million persons, accelerated by 12.0 percent compared to 2009. Tourism sectors continued to grow. This can be seen in increased number of flights and passengers of Low-cost carriers (LCCs) by 21.3 and 26.6 percent respectively. In conclusion, hotels and restaurants sector in 2010 expanded by 8.4 percent.
Employment in the fourth quarter stood at 38.44 million persons, increased by 0 .7 percent compared to the same period of last year. Employment in agricultural sector grew by 3 .9 percent. On the other hand, employment in non-agricultural sector contracted by 1.3 percent particularly in hotels and restaurants, construction and manufacturing sectors which contracted by 4.8, 3.0 and 2.1 percent respectively.
Number of unemployment in the fourth quarter stood at 337,000 persons, declined by 47,000 persons compared to the same period last year (equivalent to 12.2 percent reduction). The unemployment rate stood at 0.9 percent. This has resulted in the number of registered persons claimed for unemployment compensation to substantially drop by 11.1 percent.
In 2010, employment increased by 1.0 percent with number of unemployed stood at 402,560 persons and unemployment rate of 1.0 percent. Tension in labor market situation continued to linger as the ratio of vacancies to registered applicants remained relatively constant throughout 2010 at 1.0, 0.7, 1.0 and 1.2 in Q1, Q2, Q3, and Q4 respectively. Skill labor shortage remains visible in motor vehicle, electronics appliances and electronics, food, and textiles industries.
Fiscal condition: Budget deficit continued from the previous quarter, while revenue collection remained high since fiscal year 2010 and disbursement level exceed set target. As a result, public debt declined compared to the last quarter.
In the first quarter of fiscal year 2011 (October-December 2010) government revenue was 392,328 million baht, exceeded the target by 41,050.7 million bath or 11.7 percent and grew by 12.6 percent compared to the same period of last year. The revenue collection remained high since fiscal year 2010 following strong growth in domestic economy and private consumption, especially in durable goods. Tax category which experienced a higher collection rate, compared to same period of last year, were corporate income tax, value added tax, specific business tax and automobile tax.
On expenditure side, the total budget disbursement was 598,371 million baht. In detail, the total budget disbursement comprise of (1) the 2011 budget disbursement of 553,323.0 million baht, equivalent to 28.9 percent of the annual budget (exceed the set target of 20 percent), and (2) carry-over budget disbursement of 45,048.0 million baht. Furthermore, the 2011 budget disbursement included (1) current budget disbursement of 520,091 million baht or 31.3 percent of total current budget, and (2) capital budget disbursement of 33,226 million baht, equivalent to 9.6 percent of the total capital budget (lower than the set target of 10 percent).
The Stimulus Package 2 (SP2), the total budget allocated for SP2 was at 334,914.3 million baht. The total disbursement of SP2 investment projects was at 2 5 7 ,0 6 1 .0 million baht, equivalent to 76.8 percent of the total SP2 budget.
Fiscal balance in the first quarter of fiscal year 2011, the budget balance on cash basis recorded a deficit of 1 6 8 ,9 1 4 million baht. In detail, budget balance recorded a deficit of 206,043 million baht and non-budgetary balance posted a surplus of 37,129 million baht. Moreover, government has conducted a cash balance management, that was consistent with budget demand and improve country fiscal stability, through debt financing in the amount of 53,021 million baht. As a result, budget cash balance, after borrowing, registered a deficit of 115,893 million baht. On December 2010, the treasury reserves recorded a total of 313,429 million baht.
Public Debt at the end of November 2010 amount to 4,166,322 million baht, declined by 64,423 million baht or by 1.5 percent from the end of September 2010. The ratio of public debt of GDP was 41.4 percent declined from 42.3 percent at the end of September 2010.
- Financial Condition:
Policy rate slightly increased as inflation risk heightened. During the fourth quarter, the Monetary Policy Committee (MPC) decided to raise the policy interest rate by 0.25 per cent per annum, from 1.75 to 2.00 percent per annum. The decision was made in tandem with strong economic outlook, while inflationary pressure is expected to rise in the near future. Similarly, policy rate in many Asian countries, such as India, South Korea and Australia, were adjusted upward in order to slowdown expected inflationary risk.
Policy rate movement in 2 0 10 . During the first half, the policy rate remained low at 1 .2 5 percent per annum to support economic recovery. However, in the second half, the Thai economy has shown sign of robust growth, thus MPC decided to raise policy rates 3 times. Furthermore, in January 2011, MPC decided to increase the policy rate by 0.25 per cent per annum to 2.25 percent per annum. The reasons supporting the decision included: 1) to ease inflationary pressure, which is currently driven by continual increase in domestic and external demand, 2 ) inevitable upward trend in oil and commodity prices, and 3 ) Thai economy is expected to grow robustly in 2 0 1 1 . Likewise, some countries in the region, such as South Korea, India and China, have raised the policy interest rate during January and February 2011 to reduce inflationary pressures as the economic recovery become more evident.
Commercial banks’ interest rate increased following the policy rate hike. An average of 12-month deposit rate and MLR lending rate slightly increased from 1.26 and 6.00 percent per annum, at the end of third quarter, to 1.55 and 6.12 percent per annum, at the end of the fourth quarter. Headline inflation rate slightly declined, from the previous quarter, to 3.0 percent. As a result, real deposit and lending rate slightly increased to -1.45 and 3.12 percent per annum, respectively.
Depository corporations’ deposits including bill of exchange (B/E) accelerated by 10.9 percent, compared to an expansion of 9.7 percent in the previous quarter. In particular, Bill of Exchange (B/E) escalated by 40.2 percent, mainly due to increased in fundraising activity by financial institutions to support future credit expansion. Likewise, private loan (excluding accrued interest) increased by 12.5 percent, accelerated from 10.8 percent in the preceding quarter. This was mainly due to an expansion of household loan, particularly in loan for purchase or hire purchase of cars and motor-cycle. Corporate loan had shifted into positive territory for the first time since the third quarter of 2009. Moreover, corporate loan improved in all sectors following an economic recovery. Moreover, number of credit card declined while credit outstanding picked up in tandem with hike of Thai’s consumer spending. In addition, NPL2 to outstanding loan decreased to 1 .9 percent from 2 .3 percent in the prior quarter as repayment, debt restructuring and selling of debt process increased. For the year 2 0 1 0 , Depository corporations’ deposit including bill of exchange (B/E) continually expanded in line with economic recovery, an ongoing of policy rate normalization, and the retirement of Korean Bond. Meanwhile, private loan (excluding accrued interest) had increased significantly, especially in household loan following an implementation of economic stimulus measures.
Commercial banks’ credit (excluding repurchase position (R/P)) to deposits (including B/ E) ratio tightened to 92.1 percent from 90.5 percent in the preceding quarter, as a result of acceleration in loan extension. Excess liquidity in commercial banking system, accordingly, slightly dropped from 1.26 trillion baht in the previous quarter to 1.24 trillion baht but remained ample. Furthermore, the current level of excess liquidity will be adequate to facilitate future loan extension.
Thai baht continued to appreciate against US dollar. An average exchange rate in the fourth quarter of 2010 was at 29.988 baht per US dollar, appreciated by 4.99 percent from the previous quarter and 9.84 percent from the same period of last year. Thai baht continued to appreciate against US dollar due to inflow of investment capital in response to US quantitative easing measure (QE) and an ongoing process of policy rate normalization in regional countries. In addition, Thai baht appreciated against other regional currencies including that of exportcompeting- countries. Nominal effective exchange rate (NEER) and real effective exchange rate (REER) increased by 2.52 and 1.85 percent.
In 2010, Thai baht appreciated by 7.60 percent compared to 2009 with an average exchange rate of 31.665 baht per US dollar and movement range between 29.563 — 33.255 baht per US dollar and real effective exchange rate (REER) increased by 5.48 percent.
In January 2011, appreciation of Thai baht started to slow down with an average of 30.580 baht per US dollar, an average exchange rate over period of 1st — 17th February was at 30.765 baht per US dollar.
Capital and financial account recorded a net inflow.3 In the fourth quarter, capital and financial account recorded a net inflow of 3.02 billion US dollars, slowed down from 7.31 billion US dollars in the previous quarter. The decline in net inflow was mainly contributed by outflow of non-banking sector, shifted from net inflow of 1.72 billion US dollars to a net outflow of 2.25 billion US dollars, following an increased in outflow of trade credits by Thai’s exporter.
In 2010, capital and financial account recorded a net inflow of 15.21 billion US dollars, shifted from net outflow of 2.78 billion US dollars in 2009. These dramatic improvements were seen in all sectors especially in banking sector, following an increase in hedging position of Thai’s exporter. Furthermore, inflow in government and Monetary authorities sectors also improved, owing to higher foreign investor demand for debt securities in the secondary market.
Current account in the fourth quarter registered a surplus of 5,509 million US dollars (or equivalent to 164,910 million baht), continued from a surplus of 2,047 million US dollars in the previous quarter. This was attributed by trade balance surplus of 4,072 million US dollars and income and transfer surplus of 1,436 million US dollars.
In 2010, current account surplus recorded at 14,784 million US dollars and income and transfer surplus at 753 million US dollars.
In 2010, international reserve was at 172.13 billion US dollars, expanded by 34.4 percent from the same period last year. It is also revealed that the international reserve at the end of January 2011 stood at 173.98 billion US dollars (excluding Net Forward Position of 19.30 billion US dollars), which was equivalent to 4.1 times of short-term foreign debt or 3.6 months of import.
Headline Inflation in the fourth quarter of 2010 was at 2.8 percent as a result of increased in price of fresh foods (particularly fruits and vegetables), in accordance with an increased in world price. In the fourth quarter, food and beverage price index escalated by 5 .6 percent. Whereas non-food and beverage price index increased by 1 .4 percent, mainly due to (i) termination of water supply subsidy scheme (effective on April 1st 2010), and (ii) higher oil price following a rise in world crude oil price. Core inflation (excluding fresh food and energy) in the fourth quarter remained constant from the previous quarter at 1.2 percent. This reflected an upward trend of most commodities’ prices. Therefore, Bank of Thailand decided to normalize policy rate in order to maintain domestic economic stability and control inflation pressure that is expected to elevate in 2011. In 2010, headline inflation stood at 3.3 percent, with 5.4 percent of food and beverage price index and 1 .4 percent of non-food and beverage price index. However, the 15 years free education program subdued the expenditure on education including text books, stationeries as well as student uniforms.
Producer price index in the fourth quarter of 2010 remained high with an expansion rate of 6.3 percent. Key contributing factor to this phenomenon was higher prices of agricultural products as a result of lower crop production affected by flood while domestic and external demands remained high. This has put tremendous amount of pressure toward the production cost specifically non-food raw materials and the price of consumer products especially fresh food. This may result in less profit margin of production and ultimately lead to an increase in price in 2011.
SET index continued to improve from the previous quarter, while net buy position of foreign investor declined. In the fourth quarter, SET index closed at 1 ,0 3 2 .8 points, increased from 9 7 5 .3 points (equivalent to 5 .9 percent) in the previous quarter. This improvement was mainly contributed by (1 ) higher investor’s confidence over economic outlook of Thai and regional countries, and (2 ) increase of net buy position by investment funds. However, some investors have realized capital gain profit following a full year acceleration of SET index. As a result, foreign investors’ net buy position had declined from 60.0 billion baht in the third quarter to 40.1 billion baht in this quarter. Average daily trading value slightly increased from 35.7 billion baht to 35.9 billion baht.
In 2010, SET index significantly improved, especially in the second half, by 40.6 percent from the previous year. This remarkable improvement was a result of (1) expectation over positive earning of listed companies, supported by strong regional economic outlook, and (2 ) anticipated return from increase in stock price and upward trend of Thai baht. For the year 2010, foreign investors’ posted a total net buy of 81.7 billion baht.
Foreign investors’ net buy position improved significantly. Daily average outright trading in the fourth quarter registered at 77.0 billion baht, slightly declined from 78.6 billion baht in the previous quarter. Foreign investors’ recorded a net buy of 1 4 2 .2 billion baht due to an expectation of regional interest rate hike, while the termination of tax exemption on profit from debt securities trading had marginal effect on debt securitys’ demand. Nevertheless, government bond index declined as debt security supply remain high.
In 2010, Daily average outright trading significantly improved with foreign investors’ posted a net buy of 323.7 billiion baht, compared to a net buy of 26.9 billion baht in the previous year. The strong improvement in foreign trading position was evident in the second half following a clearer upward trend in policy rate.
Corporate fundraising improved in tandem with economic expansion. Private fundraising totaled at 275.4 billion baht, increased from 267.5 billion baht in the same period of last year. Debt securities issuance remained high at 258.8 billion baht. The majority of debt securities issuance came from financial intermediation, real estate and production sectors. Moreover, fundraising through equity securities significantly improved from the same period of 2009, with a total of 16.7 billion baht which equivalent to a 59.2 percent growth.
In 2010, corporate fundraising totaled at 1.1 trillion baht, slightly improved from 2009. In detail, debt securities issuance recorded at 9 6 5 .7 billion baht slightly dropped from last year, according to interest rate hike in the second half of 2 0 1 0 . Meanwhile, fundraising through equity securities dramatically increased by 219.7 percent, reflect an remarkable improvement in equity market condition.