* In the third quarter, Thai economy expanded by 4.7 percent, slowed down from 6.1 percent and 5.0 percent in the first two respective quarters. Overall GDP in the first three quarters registered a satisfactory growth 5.3 percent, underpinned primarily by robust export of goods and services which helps compensate for the slowdown in domestic demand.
* The economic stability has been maintained as the inflationary pressures subsided. The headline inflation averaged at 3.6 percent in Q3, coming down from 5.9 percent in H1/2006. Unemployment rate was 1.4 percent in Q3 and 1.6 percent in the first three quarters. Current account registered a small deficit of 300 million USD in the first 9 months.
* Rising interest rates have led to an increase in fixed deposit while private credit decelerated. The deceleration has been evident in terms of consumer credit and credits extended to business sector. Financial liquidity in the financial institutions has remained high.
* In the first 3 quarters, consumption of petroleum products declined by 2 percent from the same period of last year despite the economic growth of 5.3 percent. Comparing with the increase in petroleum consumption of 9.7 percent and 0.4 percent in 2004 and 2005, respectively, this improvement implied a higher energy-efficiency.
* GDP in 2006 is likely to record a 5 percent expansion with an inflation of 4.6 percent and a small current account surplus of approximately 0.2 percent of GDP. The further economic slowdown is projected for Q4 as export started to slowdown, import accelerated and the rebound in investment is still uncertain.
* The 2007 economy is forecast to grow by 4.0-5.0 percent with an expected inflation rate of 3.0-3.5 percent, cooling down from 2006 thanks to the effects of rising interest rates during 2006, stronger baht, and oil price decline. Current account balance will be in surplus of approximately 0.1-0.5 percent of GDP. The economic constraints in 2007 will be primarily the limited potential for export growth while the recovery of investment will not be full-fledged. Unemployment rate will remain low throughout 2007
1. Economic Performance in Q3/2006
1.1 The Thai economy in the third quarter of 2006 expanded by 4.7 percent, slowing down from the first half of the year. However, overall economic growth in the first nine months reached a favorable rate of 5.3 percent
Key Themes
- Thai economy in the third quarter grew by 4.7 percent, slowing down from 5.0 percent in the second quarter and 6.1 percent in the first quarter. This was due to a significant slowdown in consumption and investment, both private and public sector. Exports also showed a softened path, while imports expansion was stronger. Stimulation of trade sector to the economy, thus, became moderate.
Production sector Agricultural sector grew by 5.2 percent, slowing down from 7.4 percent in the first half of the year due to unfavorable weather condition that affected some major crops such as maize and rubber. Moreover, chicken production slowed down as a result of the bird flu in July. Non-agricultural sector expanded by 4.7 percent. Manufacturing and almost all services sectors slowed down, except transportation and communication and electricity and water supply sectors. Significant slowdowns were apparent in textile and finished clothes, chemical and vehicles.
- Overall, the economy in the first three quarters of 2006 expanded by 5.3 percent, driven mainly by strong exports volume of 9.1 percent. This offset a slowdown in private consumption and investment of 3.4 and 4.4 percent respectively, the lower growth than last year, owing to higher oil price, inflation, interest rate and concerns over political situation. Hence, production and service sectors related to exports gained higher benefits from the economic expansion than those with current income or business that depended on the domestic economy.
- Domestic demand significantly slowed down. In the first nine months of the year, domestic demand rose by 4.0 percent, lower from 7.5 percent in the same period of 2005.
- Private consumption expanded by 3.4 percent, slowing down from 4.5 percent in the same period of last year and from 3.6 percent in the first half of the year. This was a result of declined purchasing power in response to high oil price and commodities prices, high interest rates and deteriorated consumer confidence since the beginning of the year.
- Government expenditure slowed down. In the first nine months, government expenditure grew by 5.7 percent, lower than 14.7 percent in the same period of 2005.
- Private investment increased by 4.4 percent, slower than 12.0 percent in same period of last year. This slowdown was seen both in equipment and machinery and construction. Negative factors include (i) Soaring oil prices and high interest rates that put pressure on production cost. (ii) Political uncertainty that worsened business confidence and led to pending decision on investment. Government investment increased by 5.1 percent, down from 13.2 percent, partly due to delay disbursement of state enterprises.
- Exports still served as key engine of growth in 2006, especially exports of electronics that flourished from expansion of electronics cycle and exports of rubber in the light of increasing demand in China and India. Exports to major markets including the US, Japan, Asian and Europe expanded satisfactorily in tandem with those economic conditions. Meanwhile, exports to other markets like China, India, Middle East and Eastern Europe performed well as well.
Nevertheless, export volume continued to slowdown with a growth rate of 13.9 percent in the first quarter, down to 9.2 and 4.9 percent in the second and third quarter respectively. This was partly due to the fact that world electronics cycle has approached its downtrend since the second quarter and it was also due to high base effect as exports growth was buoyant in the third quarter of 2005.
Furthermore, baht appreciated from 41.03 baht per US dollar in December of 2005, to 37.30 in October of 2009. There was, however, no clear evidence of its impacts. Exporters especially those who mainly rely on domestic raw materials and being labor-intensive, such as agro-industry products, textiles, clothes and shoes will suffer more than the technology intensive industries which depend on imported inputs. The reason is that labor-intensive industries can not fully adjust price (in term of US dollar), whereas there were increasing burden from higher wage, interest rates and oil price in baht term
- In the first nine months of 2006, imports showed a sharp slowdown. However, it accelerated in the third quarter after a slowdown in the first half of the year. This was due to high imports of raw materials, namely iron and gold, than a normal trend, both for production and speculation in the first half of 2005. Oil imports also soared due partly to speculation that price would further increase. Moreover, the slowdown in private investment in the first nine months and the complete construction of Suvarnabhumi airport, led to a sharp slowdown in demand for import capital goods. Measures on import management of products with high volume and volatility, namely oil, iron and steel and gold also brought about a sharp decrease in import volume of iron and crude oil.
- In the first nine months, trade account registered a deficit of 479 million US dollars and current account(A) recorded a deficit of 342 million US dollars. In the third quarter, trade account was in a surplus of 1.45 billion US dollars. Net trade account of oil and petroleum products was in deficit of 5.34 billion US dollars, while non-oil trade account recorded a surplus of 6.79 billion US dollars. Current account was in a surplus of 1.25 billion US dollars
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(A) BOT has changed definition of `Reinvested earnings' into a new definition. According to the IMF's Balance of Payments Manual: 5th Edition (BPM5), inclusion of non-residents' reinvested earnings
shall result in an increase in the "Foreign Direct Investment" (FDI-inflow). In accounting practice, reinvested earnings are recognized as though the profits were actually repatriated to foreign investors before they were subsequently reinvested in the domestic economy. Therefore, reinvested earnings also need to be recorded as outflow under "Investment Income Payment" item, and as a result, worsening the Current Account by the exact amount which "Foreign Direct Investment Inflow" increased. The series have been revised back to 2001.
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