3.2.2 Internal risk factors associated with the economic prospect are as follows:
(1) A recovery of private investment is still uncertain. It is expected that some investors will
postpone their decisions until after the next election. As for foreign investors, they will wait for the
amendment of Alien Business Act to be completed, especially issues on foreign shareholders' voting rights
and equity ownership as well as the opening up of some sectors which were previously under control for Thais
only. In addition, production costs have also been rather high following a minimum wage raise, real interest
rates uptrend and high oil price. These factors tend to discourage investment expansion given that market
prospect are not bright. Recent key investment indicators showed that investor confidence was still weak.
Value of investment projects both net application and approval projects from the Board of Investment (BOI)
declined by 32.7 and 43.8 percent in the first ten months of 2006 respectively. These are leading indicator
of investment in 2007 that will not be able to fully recover. In addition, capacity utilization rate also
slowed down.
(2) Agricultural products' prices began to slow down and will adversely affect farmer's income,
particularly prices of rubber, corn and paddy.
(3) Adjustment of export-oriented production sector under more stringent trade measure namely (i)
GSP termination since the beginning 2007, US will not resume the Generalized System of Preferences (GSP) for
Thailand's export of jewelry and precious stone which will consequently lead to tax rate of 6.5 percent (ii)
Moreover, the US will consider whether they will continue cutting the GSP privilege in 2007 on television's
export because Thailand's potential on television's exports has increased resulting in higher export share.
(iii) The EU countries arrange to announce regulation on Restriction on Hazardous Substances (RoHS) in
electrical appliances and electronic products. The SMEs entrepreneur will, thus, need to adjust themselves
to handle higher cost. (iv) The European Commission plan to regulate exporters of food products and aquatic
animal's food to acquire approval document for detecting dioxins prior to their exports to the EU countries
which will cause higher cost of export
3.3 Key Assumptions for 2007 Projection: Global economic growth is estimated to be 4.2 percent.
Dubai oil price is expected to be 60 US dollars per barrel.
(1) The world economy in 2007 is likely to grow by 4.2 percent, decreasing from 4.8 percent in
2006 and 4.4 percent in 2005. This projection is due to the downward economic growth of key economies such
as USA, Euro area, China, Japan and Asia, and the tightening monetary and fiscal policies over the last two
years. In addition, this downward growth is resulted from a decrease in private investment of electronics
which rapidly expanded during 2004-2006, and the impact of high oil price lingering since 2004. Hence,
international trade and investment in year 2007 is expected to decelerate and less likely to be an economic
impulse than in 2005-2006.
(2) Crude oil price is expected to be around 58-62 US dollars per barrel or the average price of
60 US dollars per barrel, decreasing by 2.3 percent from estimated prices of 61.30 US dollars per barrel in
2006. Oil price is likely to remain high. It is expected that the average price will be around 58-62 US
dollars per barrel in 2007. The most likely price is 60 US dollars per barrel which is slightly lower than
61.30 US dollars per barrel in 2006, or decreased by 2.3 percent. It is expected that oil price will
increase in the first quarter during the winter season. Thereafter, it will remain high due to the
production cut of OPEC effective from 1 November, 2006(D). As a result, oil spare capacity in Saudi Arabia
will be around 1.3-1.8 million barrels per day. Although, such spare capacity slightly increases from last
year, it is near 30-year low level. In November 2006, International Energy Agency (IEA) forecasted that
world oil supply in 2007 will be 86.4 million barrels per day, slightly decrease from 86.6 million barrels
per day in 2006. Meanwhile, the world oil demand will increase from 85 million barrels per day in 2006 to
86.5 million barrels per day. More than the half of such demand increase in the world market will be from an
increased demand in US and China. The oil demand of oil exporters will also increase stimulated by rising
income from oil exporters in the past 2-3 years. Moreover, it is expected that the stock of oil products in
OECD will decrease in the end of 2007.
- On 7 November 2006, Energy Information Administration (EIA) forecasted West Texas
Intermediate (WTI) in 2006 to be on average of 66 US dollars per barrel and slightly decline to 65 US
dollars per barrel in 2007. WTI price is generally 3-5 US dollars per barrel higher than the Dubai price(E).
- On 1 December 2006, referring to Global Weekly Economic Monitor by Lehman Brothers,
the Brent future price of 2007 is about 72 US dollars per barrel, increasing from 66 US dollars per barrel
in 2006. The gap between Brent and Dubai price increases to approximately 3-8 US dollars per barrel(F).
(3) Export and import prices. In 2007, it is expected that commodities' prices in the global
market is still on uptrend, but with a decelerating rate, as a result of falling oil and raw materials
prices. Although, the demand of commodities and raw materials remains high, the prices were already adjusted
significantly in 2006. It can be seen that commodities prices, including steel and rubber and prices of
computer compartments were already at peak and start to decline in the end of 2006. Average export price in
US dollar term is assumed to increase by 4 percent, compared to an increase by 7.7 percent in 2006. Import
price is expected to increase 5 percent in 2007, as compared to 8 percent increase in 2006. Hence,
Thailand's term of trade will improve and generate positive income effect.
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(D) The reduction in oil production is different from past records. Its target is to decrease the
quantity of the actual oil production but not the quota of production. However, it is noted that OPEC did
not announce the starting quantity of production of each country members, referring as the benchmark of
reducing production, in each member country. This resulted in the uncertain quantity of production in each
member country.
(E) Short-Term Energy Outlook, EIA, 7 November 2006
(F) Global Weekly Economic Monitor, Lehman Brothers, 24 November 2006
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