The Office of National Economic and Social Development Board evaluates Thai economic situation in 2000 and forecasts economic trend in 2001 as follows:
1. Thai Economic Situation in 2000
1.1 Thai economy slowed down in the third quarter of 2000.
(1) Thai Economy started to recover from economic crisis in the second half of 1999 and continued to grow in the first half of 2000. Thai economy, however, slowed down in the third quarter of this year because there were some negative factors e.g. high oil price, flood in the northeast of Thailand, a decrease of farm price, a bear stock market, and political uncertainty. These factors limited economic growth.
(2) The world economy slowdown caused by a slowdown in US economy has not yet transmitted pronounced effects to Thai economy because initial adjustment of domestic demand in US economy was adjustment in demand for hi-tech commodities. This adjustment had adverse effects on Korean and Taiwanese economies, but not on Thai economy because Thailand exported medium and low-level electronics products. Export value from Thailand to USA still increased in the third quarter of 2000 by 22.9 percent higher than 11.2 percent expansion in the second quarter of this year.
(3) Key economic indicators in production and expenditure sides in the third quarter of this year showed that the economy continued to grow relative to the same period of last year; however, the growth rate of this quarter was lower than those in the first and second quarters of this year except for the growth rate in the international-trade sector. The effects of high oil price forced prices of several commodities to increase and the continued depreciation of baht might elevate the inflation level up. The farm price, however, remained in the low level, which helped to release some pressure out of surging inflation. With this reason and the high level of liquidity in money market, the Bank of Thailand was still able to implement an expansionary monetary policy and comfortably place an interest rate in the low level.
1.2 Economic Trend in the Fourth Quarter of 2000. Economic Indicators in production and expenditure sides in October show that the economy continues to grow relative to the same period of last year, but expansion trend has decreased since the third quarter of this year. We think a slowdown in U.S economy does not have strong effects on Thai export in the last quarter of this year. Continued expansion of export will be a factor encouraging private investment to increase; however, private consumption remains fragile.
(1) The important factors that support recovery of Thai economy are
low inflation level and low interest rate
continued expansion of export
growth in private investment particularly investment in machinery, equipment, and new projects by companies which were granted privileges from the Office of Board of Investment (BOI)
continued expansion of private consumption
(2) The important factors that limit recovery of the economy are
high oil price, which can affect cost of production, purchasing power, and confidence levels of consumers and investors
incomplete recovery of financial sector
stoppage of several economic activities due to major flood in the south of Thailand*
political uncertainty, which can affect the confidence levels of consumers and investors (who are waiting to see coalition of a new government and its new policies)
decrease in Stock Exchange of Thailand (SET) Index and its negative impacts on wealth due to a bear stock market.
low farm price, which worsens farmers' income
1.3 Economic Trend in 2000. In the first three quarters of 2000, GDP at constant 1988 price grows 4.7 percent. With obvious trend of an economic slowdown in the last quarter of 2000, it can be seen that GDP in 2000 will grow at the rate of 4.5 percent, which is lower than the projected growth rate of 5.0 percent (as of 18 Sep 2000) because
(1) GDP growth in the first half of 2000 was adjusted from 5.9 percent to 5.7 percent.
(2) average oil price in the second half of this year is higher than expected. This alters an assumption on crude oil price (Oman) in our latest projection from 27 dollars per barrel to 28 dollars per barrel.
(3) several economic activities cannot function properly due to major flood in the south of Thailand.
(4) import still grows faster than export although growth rate of export is higher than that from previous projection. The positive factors that encourage growth of the economy are domestic and external demand. Consumption is expected to increase by 4.8 percent, which is contributed by 4.1 percent growth in private consumption and 9.0 percent expansion in government consumption. Aggregate investment and private investment are expected to increase by 4.0 percent and 10.0 percent particularly investment in machinery while construction investment increases at a slower rate because there are a lot of vacant office buildings and factories available nowadays. Export value in 2000 is expected to be 68.2 billion US$. It increases by 20 percent from the previous year. Import value is expected to be 63.0 billion US$. It increases by 31.8 percent from 1999. Together with service and transfer account, current account is surplus by 8.4 billion US$, equivalent to 6.7 percent of GDP.
2. Economic Trend for 2001
2.1 The economy is expected to grow at the rate of 4-4.5 percent, which is slower than growth in 2000. The main contribution to economic growth will be more likely to rely on domestic demand while external demand is limited by a slowdown in the world economy. Pressure of surging oil price on cost of production will become more pronounced. Inflation rate in 2001 is expected to be 2.6 percent.
2.2 Private investment continues to grow at the rate of 9.4 percent. The increased number of investment projects granted privileges by the Office of Board of Investment (BOI) in 2000 and growing export, which has begun since the second half of 1999, will stimulate private investment particularly investment in machinery and equipment. Private consumption will increase by 4.0 percent because of lacking strong supporting factors. The government will need to implement an expansionary fiscal policy to boost the economy in the future. Government consumption and government investment at the constant price are expected to grow at the rate of 4.2 and 2.1 percent.
2.3 Export continues to grow, but with a slower pace than that in 2000. A slowdown in the world economy will make competition in the world economy more serious, while the implementation of non-tariff barriers (e.g. health standard and environment standard) will be more pronounced. It is expected that in 2001 export value will be 74.3 billion US$. It increases moderately 9 percent from 2000. Import value will be 70.9 billion US$. It increases 12.5 percent. Because import appears to grow faster than export, this phenomenon will reduce trade surplus. Trade surplus in 2001 is expected to be 3.4 billion US$, less than trade surplus of 5.2 billion US$ in 2000. Together with service and transfer account surplus of 2.1 billion US$, current account in 2001 will be surplus as 4.2 percent of GDP, decreasing from 6.7 percent in 2000.
2.4 Conditions which may limit economic growth consist of
(1) Slowdown in the world economy. The world economy will grow with a slower pace. The anticipated rate of growth is 4.2 percent, lower than the growth rate in 2000 as standing at 4.7 percent, which is adjusted according to a downturn of the U.S. business cycle, fragility of Japanese economy, and continuous expansion of European economies. Regional economies' trend is going down, corresponding to a slowdown in the world economy. Korea, Taiwan, Malaysia, and Philippines are expected to get bigger effects from electronic downswing than Thailand, China, and Indonesia are. However, an increase in regional trade forced by free trade idea and general supports from intra-regional trade will be another layer of economic immunity system against external fluctuations outside this region.
(2) High oil price in the first half of 2001. Oil price will start to drop a little in the second half of 2001 when impacts of the world economy slowdown is more pronounced.
(3) Bear stock market. Although it is not clear whether or not stock market gears up, more and more financial institutions are expected to operate as good as they were used to be.
(4) Political uncertainty during a new election. Longer time to conclude a new election's results and to form a new government may cause a slowdown in the economy because some investors prefer to delay their 2.5 Positive factors which will encourage economic growth in 2001 are
(1) Low level of inflation. Although pressure of surging oil price on cost of production become more pronounced if the government's supporting programs are ended, mild recovery of demand, moderate level of capacity utilization, and high level of unemployment will not force the inflation level to increase. Core inflation will be able to stay in target range 0-3.5 percent as set by the Bank of Thailand.
(2) Continued low domestic interest rate. The low level of domestic interest rate may persist through next year because liquidity in money market is still high. In addition, the inflationary pressure remains manageable and the Federal Reserve Bank may decrease the Fed funds rate in 2001 to prevent the U.S. economy from hard landing.
(3) Progress of debt restructuring. Debt restructuring has reduced the amount of non-performing loans (NPLs) since 2000. Debt transferring from banks to Asset Management Companies (AMCs) together with the full provision for bad debts (i.e. outstanding NPLs exceeding collaterals) by the end of this year will allow financial institutions to expand credits better next year.
(4) Better trend for agricultural products. Because stock or excess supply of agricultural products starts to decrease in 2000 and we expect that the agricultural business cycle will start to go up in 2001, the farm price in 2001 will be higher.
2.6 Upside risk and possibility of higher growth than projected. For forecasts for 2001, it is possible that the economy will grow faster than projected if ongoing activities to increase productivity gains and measures to boost export encourage export to grow faster than that in the case of no upside risk. Under this scenario export is expected to grow at the rate of 11 percent, which is consistent with target set by Ministry of Commerce. Consequently this will trigger private investment and private consumption to grow higher than those in the case of no upside risk.
3. Policy Implementation in 2001
3.1 Accelerate process of decreasing NPLs. The government will improve speed and efficiency of the court process in diagnosing financial cases. In addition, the government will keep up with NPL data and analyze sources of new NPLs and re-entry NPLs closely in 2001.
3.2 Launch measures to stimulate private investment. The government will launch policies particularly the ones relating to increase liquidity to stimulate Small and Medium Enterprises (SMEs)' investment. The government will also launch policies to eliminate excess supply in real estate sector and encourage the operation of SMEs by using the government's mechanism e.g. SMEs Financial Advisory Center and SMEs Development Center.
3.3 Boost export. The government will boost export by searching for new markets and encouraging improvement of commodity standard corresponding to the new world trade order such as environmental standard and solid-waste standard.
3.4 Convince people to reduce consumption on luxurious goods. Private expenditure indicator shows that although recovery of overall private consumption is not secured yet, import value of consumer goods together with the number of people traveling abroad increases. This phenomenon deteriorates current account surplus.
3.5 Convince people to save energy and use it effectively. The government will find practical ways to adjust technology and search for substituted sources of energy. The government will gradually get rid of temporary measures the government launched to avoid serious effects that may happen in the future and eventually allow the market mechanism to function freely and reduce the price distortion as much as possible.
3.6 Focus more on fixing economic problems in real sector. The government will concentrate more on coping with economic problems in real sector. Not only structure of production will be improved, but also cost of production will be cut. However, the government will still be concerned with consequences of economic development on environment.
3.7 Continue to keep the fiscal disciplines. To fix the public debt problem, the government will look after government spending and revenue, revise plans and investment projects by allowing for only necessary expenditures to occur in such plans and projects, and manage public debt carefully, For example, the government will issue the government bonds to guarantee the status of the Financial Institutes Development Fund (FIDF) with appropriate maturity and yield.
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