- Investment continued a strong momentum, due to (1) Rising capacity utilization rate which counted as key driving force. At the end of October, capacity utilization averaged 71.9 percent up from the rate of 68.7 percent in 2004. Several industries produced to full or almost full capacities namely electronics, petrochemical, vehicles, chemical and paper products. (2) Investment in Mega-project and the disbursement target of 100 in SOEs investment plan (3) Increasing corporate profits in the previous 2-3 years and benign market expectation from both domestic and international market support investors to expand their investment.
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( ** ) Current account deficit and budget deficit.
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- The export tends to be promising especially in the agricultural products, food, vehicles, and electronics. The global economic growth at least 3.0 percent will support the export at a satisfactory rate both IMF and the world bank expected the world trade will increase by 6.0-7.0 percent in 2006
- The agriculture sector tends to expand at a good pace. Both price and quantity of exports are expected to increase after facing drought last year. Commodities whose price tend to rise are rubber, palm oil, sugar cane and cassava
- Tourisms improved from the continued rehabilitation of Tsunami and the development of new tourism
- The unrest in the south, Avian flu, and other disasters are the risks of the economy that should be on the precaution. This needs some preparation for problem solvency and warning system
2.2 Key Assumptions for 2006 Projection
(1) The world economy in 2006 is projected to expand by 3.4 percent, slightly softening from 3.6 percent in 2005. Major economies are expected to grow at a moderate level. The US economy tends to expand by 3.3 percent, decelerating from 3.6 percent in 2005. The Japanese economy tends to expand by 1.8 percent, compared to 2.1 percent growth in 2005. The growth of EU economy will decelerate further from 1.5 percent to 1.0 percent. The Asia-ex Japan economies will accelerate further in 2006 due to the stronger economic growth momentum in the latter half of 2005 with the major contribution from export as trade within the region is expected to increase as a result of the Asian trade cooperation. China is expected to cool down from 9.5 percent in 2005 to 8.5 percent in 2006, due to high expansion rate of 9.5 percent due to the rising interest rate, control of credits in overheated sectors such as real estate. Key themes of the world economy of 2006 are as follows:
- The widening current account imbalance, reflected in the continued trade deficit and current account deficits in the US and that of surpluses in China, Japan, South Korea and Taiwan will be the risk factors that could
jeopardize investment and dollar confidences. Major analysts forecast that in 2006 the dollar tends to depreciate relative to euro and yen.
- Inflation is on a rising trend during the first half of 2006 in line with higher oil prices and demand for goods and services. However, inflation is expected to slow down in the latter half because of the high base price in the latter half of 2005. In addition, the demands of goods is expected to slow down in the second half of 2006 which will help reduce the pressure of inflation in the latter half of the year. The inflation in 2006 is on average at the lower level than in 2005.
- Trend of global tightening monetary will cool down inflation.
(2) Crude oil price: Dubai price is assumed to be 52 US dollar per barrel, rising from 49.3 US dollar per barrel in 2005.
- Oil price will remain at the high level in 2006. Dubai price is expected to be on average at 52 US dollar per barrel in 2006. For the movement in oil price throughout 2006, the Dubai price in the first quarter (during the winter) will be on average at 54 dollar per barrel, slightly increasing from 52.66 dollar per barrel in the fourth quarter of 2005. It will then decline to 51.7 dollar in the second quarter (the driving season) and 50 dollar per barrel in the third quarter. The oil price however tends to increase in the fourth quarter, at the average of 52 dollar per
- The future price of Brent in 2006 is currently on average 57 US dollar per barrel. Moreover, gap between the Brent and Dubai prices increases to approximately 5-6 US dollar per barrel(***)
- The trend of oil prices continued to increase from the following supporting factors: (1) The crude oil demand tends to increase by 1.7 million barrel to 85 million barrel, or expand by 2 percent. The non- OECD demand, particularly China and India continued to increase. (2) The tightening capacity. The volume of OPEC production will reach 30 million barrel per day. The excess capacity is expected to reach 2-2.5 million barrel per day, higher than 1.0-1.5 million barrel in 2005. (3) Uncertainty, such as volatility in weather condition and political uncertainty. However, the net long position started to slow down since the second quarter, showing that the crude oil prices may be close to the peak, leading to a reduction in net buy positions. Therefore, the oil price is expected to slightly increase from the current situation. In addition the slowdown in world economy will reduce pressure on crude oil demand
(3) Export and Import prices. Export prices in US dollar term are expected to increase from the 2005 average price as the global economy continues strong growth momentum, leading to the higher world demand for goods. While the capacity utilization rates in many countries continue to increase and the excess capacity of global production decelerate further in 2006. In 2006, export prices and import prices in US dollar term are expected to expand by 10.9 and 8.5 percent respectively, partly reflected higher oil price. As demands for industrial commodities and prices of agricultural commodities tend to increase in accordance with high base prices of crude oil and capital goods in 2006, the term of trade in Thailand tends to improve.
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(***) Refers to Global Weekly Economic Monitor by Lehman Brother, 25 November 2006.
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2.3 Economic projection for 2006:
Under the above conditions, the Thai economic expansion in 2006 is expected to be in the range of 4.7 to 5.7 percent. Strong improvements in investment both private and public will become key driver of growth in 2006. Private consumption will remain steady while government expenditure is likely to expand with disbursement target rate of 93 percent, higher than 90.9 percent in the 2005 fiscal year.
(1) The High Case Scenario of 5.7 Percent Growth
Thai economy in 2006 could achieve 5.7 percent growth if (1) Export accelerates to reach the target of 17-18 percent growth rate in 2006 from the normal trend rate of 15-16 percent. The efforts would be primarily focused to increase exports of agricultural products, in particular rubber, shrimp, fowls, rice and canned seafood as well as manufacturing products in household goods category, namely soap and cosmetics, and electronics products. (2) The number of tourists increases by around 10 percent from the number in 2005. (3) The government disbursement and the state enterprise budget are on the target. This includes the Fix it center, SML and the provincial CEO budget and (4) The Dubai crude oil price for the whole year is approximately 50-52 US dollar/barrel.
(2) The Low Case Scenario of 4.7 Percent Growth
The low case scenario of 4.7 percent growth in 2006 is conditional upon the worse assumptions of Dubai oil prices beyond 52 US dollar per barrel. These inevitably push inflation higher than 4.0 percent. However, the chance of Dubai price to rise to that level is rare. This is because the slowdown in global economic growth will somewhat ease pressure on the demand side.
However, some domestic factors could also render economic growth to be lower than 4.7-5.7 percent such as the slower recovery in tourism sector and the delayed disbursement of mega-project and the government budget.
--National Economic and Social Development Board--
-CA/PM-
*********************************************************************************************************
( ** ) Current account deficit and budget deficit.
*********************************************************************************************************
- The export tends to be promising especially in the agricultural products, food, vehicles, and electronics. The global economic growth at least 3.0 percent will support the export at a satisfactory rate both IMF and the world bank expected the world trade will increase by 6.0-7.0 percent in 2006
- The agriculture sector tends to expand at a good pace. Both price and quantity of exports are expected to increase after facing drought last year. Commodities whose price tend to rise are rubber, palm oil, sugar cane and cassava
- Tourisms improved from the continued rehabilitation of Tsunami and the development of new tourism
- The unrest in the south, Avian flu, and other disasters are the risks of the economy that should be on the precaution. This needs some preparation for problem solvency and warning system
2.2 Key Assumptions for 2006 Projection
(1) The world economy in 2006 is projected to expand by 3.4 percent, slightly softening from 3.6 percent in 2005. Major economies are expected to grow at a moderate level. The US economy tends to expand by 3.3 percent, decelerating from 3.6 percent in 2005. The Japanese economy tends to expand by 1.8 percent, compared to 2.1 percent growth in 2005. The growth of EU economy will decelerate further from 1.5 percent to 1.0 percent. The Asia-ex Japan economies will accelerate further in 2006 due to the stronger economic growth momentum in the latter half of 2005 with the major contribution from export as trade within the region is expected to increase as a result of the Asian trade cooperation. China is expected to cool down from 9.5 percent in 2005 to 8.5 percent in 2006, due to high expansion rate of 9.5 percent due to the rising interest rate, control of credits in overheated sectors such as real estate. Key themes of the world economy of 2006 are as follows:
- The widening current account imbalance, reflected in the continued trade deficit and current account deficits in the US and that of surpluses in China, Japan, South Korea and Taiwan will be the risk factors that could
jeopardize investment and dollar confidences. Major analysts forecast that in 2006 the dollar tends to depreciate relative to euro and yen.
- Inflation is on a rising trend during the first half of 2006 in line with higher oil prices and demand for goods and services. However, inflation is expected to slow down in the latter half because of the high base price in the latter half of 2005. In addition, the demands of goods is expected to slow down in the second half of 2006 which will help reduce the pressure of inflation in the latter half of the year. The inflation in 2006 is on average at the lower level than in 2005.
- Trend of global tightening monetary will cool down inflation.
(2) Crude oil price: Dubai price is assumed to be 52 US dollar per barrel, rising from 49.3 US dollar per barrel in 2005.
- Oil price will remain at the high level in 2006. Dubai price is expected to be on average at 52 US dollar per barrel in 2006. For the movement in oil price throughout 2006, the Dubai price in the first quarter (during the winter) will be on average at 54 dollar per barrel, slightly increasing from 52.66 dollar per barrel in the fourth quarter of 2005. It will then decline to 51.7 dollar in the second quarter (the driving season) and 50 dollar per barrel in the third quarter. The oil price however tends to increase in the fourth quarter, at the average of 52 dollar per
- The future price of Brent in 2006 is currently on average 57 US dollar per barrel. Moreover, gap between the Brent and Dubai prices increases to approximately 5-6 US dollar per barrel(***)
- The trend of oil prices continued to increase from the following supporting factors: (1) The crude oil demand tends to increase by 1.7 million barrel to 85 million barrel, or expand by 2 percent. The non- OECD demand, particularly China and India continued to increase. (2) The tightening capacity. The volume of OPEC production will reach 30 million barrel per day. The excess capacity is expected to reach 2-2.5 million barrel per day, higher than 1.0-1.5 million barrel in 2005. (3) Uncertainty, such as volatility in weather condition and political uncertainty. However, the net long position started to slow down since the second quarter, showing that the crude oil prices may be close to the peak, leading to a reduction in net buy positions. Therefore, the oil price is expected to slightly increase from the current situation. In addition the slowdown in world economy will reduce pressure on crude oil demand
(3) Export and Import prices. Export prices in US dollar term are expected to increase from the 2005 average price as the global economy continues strong growth momentum, leading to the higher world demand for goods. While the capacity utilization rates in many countries continue to increase and the excess capacity of global production decelerate further in 2006. In 2006, export prices and import prices in US dollar term are expected to expand by 10.9 and 8.5 percent respectively, partly reflected higher oil price. As demands for industrial commodities and prices of agricultural commodities tend to increase in accordance with high base prices of crude oil and capital goods in 2006, the term of trade in Thailand tends to improve.
******************************************************************************************************
(***) Refers to Global Weekly Economic Monitor by Lehman Brother, 25 November 2006.
******************************************************************************************************
2.3 Economic projection for 2006:
Under the above conditions, the Thai economic expansion in 2006 is expected to be in the range of 4.7 to 5.7 percent. Strong improvements in investment both private and public will become key driver of growth in 2006. Private consumption will remain steady while government expenditure is likely to expand with disbursement target rate of 93 percent, higher than 90.9 percent in the 2005 fiscal year.
(1) The High Case Scenario of 5.7 Percent Growth
Thai economy in 2006 could achieve 5.7 percent growth if (1) Export accelerates to reach the target of 17-18 percent growth rate in 2006 from the normal trend rate of 15-16 percent. The efforts would be primarily focused to increase exports of agricultural products, in particular rubber, shrimp, fowls, rice and canned seafood as well as manufacturing products in household goods category, namely soap and cosmetics, and electronics products. (2) The number of tourists increases by around 10 percent from the number in 2005. (3) The government disbursement and the state enterprise budget are on the target. This includes the Fix it center, SML and the provincial CEO budget and (4) The Dubai crude oil price for the whole year is approximately 50-52 US dollar/barrel.
(2) The Low Case Scenario of 4.7 Percent Growth
The low case scenario of 4.7 percent growth in 2006 is conditional upon the worse assumptions of Dubai oil prices beyond 52 US dollar per barrel. These inevitably push inflation higher than 4.0 percent. However, the chance of Dubai price to rise to that level is rare. This is because the slowdown in global economic growth will somewhat ease pressure on the demand side.
However, some domestic factors could also render economic growth to be lower than 4.7-5.7 percent such as the slower recovery in tourism sector and the delayed disbursement of mega-project and the government budget.
--National Economic and Social Development Board--
-CA/PM-