- The Thai economy in the first quarter of 2007 showed favorable growth with stability, but
trended downward compared to the growth rates of 6.1, 5.0, 4.7 and 4.3 percent in first to fourth quarters
of 2006 respectively. Robust export of goods and services weathered the domestic demandled slowdown.
Overall, the economic stability remained in check. The headline inflation averaged at 2.4 percent in the
first quarter of this year. It subsided consecutively from the second half of 2006. Unemployment rate was
equal to 1.5 percent. While, current account balance recorded a surplus of 5.4 billion USD.
- Government expenditure increased in both current and investment spending by 11.2 and 2.1 percent
respectively at the constant price. These also help stimulte the economic activities in the first quarter.
- Although, interest rates declined, the liquidity remained at high level and Thai baht has beenon
appreciating trend. In the first quarter of 2007, commercial banks and finance companies’ credit slowed down
in almost every sector while commercial banks’ deposits continuously expanded. Therefore, financial
liquidity in the financial institutions stayed at high level. Exchange rate, Thai Baht per US dollar,
slightly appreciated and was more in line with movement of regional currencies.
- Consumption of petroleum products declined by 5.7 percent in the first quarter despite an
expansion of economic activities. Compared with 8 percent increase in 2005 and 3.7 percent decline in 2006,
this improvement implied higher energy efficiency.
- In 2007, the economy is likely to grow by 4.0-4.5 percent with an expected upturn of
privateconsumption and investment in the second half of the year. On the export front, it is expected to
expand further but at a moderate pace due to deceleration in exports of electronics, electrical appliances,
and automobile and parts. The supportive factors which will facilitate the economic expansion, for the
remaining months of 2007, consist of a decreasing in interest rate and inflation rate, effective
disbursement of government expenditure, an investment from state enterprise and export sectors.
- Economic stability tends to be favorable in 2007. An expected average inflation rate will be 2.0-
2.5 percent. The current account balance will be in surplus of approximately 3.0 — 4.0 percent of GDP.
Unemployment rate will remain low at 1.5 — 2.0 percent throughout 2007.
1. Economic Performance in Q1 of 2007
1.1 The Thai economy in the first quarter of 2007 expanded by 4.3 percent, the same rate as that
of last quarter of 2006, supporting by remarkable growth in net exports of goods and services and increasing
government budget disbursement, which help to offset a significant slowdown in private consumption and a
first contraction in private investment in 5 years.
Highlight
The Thai economy in the first quarter expanded by 4.3 percent, the same rate as that of last
quarter of 2006. Comparing to the economic expansion of 6.1, 5.0 and 4.7 percent in the first three
respective quarters of 2006, this suggests a slowing down pace of the economy. Exports, growing faster than
expected, remained the key driving force for growth, whereas imports continued to be on a moderate trend.
Positive contribution of public spending entailed by an acceleration of budget disbursement, where public
investment and government consumption, measured at constant price, increased by 2.1 and 11.2 percent
respectively. Nevertheless, private consumption expanded only modestly by 1.3 percent while private
investment contracted by 2.4 percent. This was a result of low consumer and business confidence and high
oilprices, as well as adjustments to continuously rising interest rates during late 2005 throughout 2006
thatbrought about rising real interest rates. Moreover, there was a sizeable reduction in inventories to
serve excess demand, particularly in the export sector.
- Private investment fell by 2.4 percent, compared to 7.0, 3.3, 2.9 and 2.3 percent growth in four
consecutive quarters of 2006. In that, investment in machinery and equipment declined by 2.9 percent thus
reduced the demand for capital goods import by 6.6 percent. The investment in construction dropped by 0.7
percent with a remarkably drop of industrial factories construction by 15.7 percent meanwhile commercial and
residential construction slowed down. The key factor depressing investment was the low investor confidence
oneconomic opportunity and political uncertainty. Investors tended to wait for clearer direction
regardingthe approval of new constitution, the settlement of election date, and the continuity of economic
drivingmeasures being implemented by the government. In addition, expected soften export outlook caused by
theworld economic slowdown tends to discourage investment prospect
Private consumption expanded by only 1.3 percent, clearly softened from 3.9, 3.3, 2.8 and 2.5
percent in four consecutive quarters of 2006. The consumption of durable goods remained to decline by 6.2
percent particularly vehicles electrical and electronic applianceswhich were sensitive to income slowdown,
high real interest rate and lower confidence. However, the consumption of non-durable goods, mainly food,
andsemi-durable goods continued to increase.
- Export substantially expanded particularly in volume while prices were relatively stable.
Exportvalue has increased by 18.5 with an increase in quantity and price by 13.2 and 4.7 respectively.
Exportitems with high growth included electronics, electrical appliances, vehicles and parts and rubber
products.Exports of rice and rubber grew better than the last quarter of 2006 performance, partly due to
favorableprice. Furthermore, the export of cassava has increased, thanks to high demand from China for
animal feed industry and alternative fuel production.However, there is a signal of slowing down in export as
the value grew by 16.5 percent in April whereby exportof electronics slowed down substantially to 10.0
percent, compared to the average of 16.2 percent growth in the first quarter. Important movements of
theexport are as follows:
- Exports that expanded well were the same group that performed well throughout the year
2006 andbenefited from the robust world economy. These goods included computers, integrated circuit, air
conditioner and parts, construction materials,vehicle and parts and rubber products. They continued to grow
considerably in April with the share of around 49 percent of total export(1)
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Notice (1) Including electronics, electrical appliances, vehicles, construction materials, and rubbles.
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- The signal of downtrend in Thailand’s electronic export has started but in a slower
pace than othercountries in the region such as Malaysia, Taiwan, Korea and China. One reason was attributed
to structural change in both production and demand.Regarding production side, production base has been
expanded since 2005. Especially, Thailand has become the world major producer and exporter of hard disk
drive with the market share of around 45 percent of world demand. On the demand side, Thailand’s electronic
market was diversified well from The US and Japan to China and ASEAN countries which showed high growth.
Electronics exported to china in the first four months expanded by 33.6 percent and accounted for 14.9
percent of total electronic export, compared to 12.0 percent growth and 13.6 percent share in
2006respectively. China imported electronic parts for producing both the export goods and finished goodsfor
growing domestic market.
- The export to major markets namely Japan, ASEAN and Europe, remained to perform well.
Meanwhile, export markets were broadened to India, Eastern Europe, ASEAN, Middle East and China,
withincreasing proportion(2). The substantial growth of export to these emerging markets could partly offset
the declining US market. Products that faced the fall of export to the US but expanded successfully in other
markets were, for instance, jewelry and ornaments, radio receiver and parts, machinery and parts.
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Notice (2) China, India, Eastern Europe, ASEAN and Middle East shared 33.0 percent of total market.
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- The value of import slowed down in the first quarter but signaled an improvement in April.Import
value increased by 3.5 percent owing to the rise in price and quantity by 3.4 and 0.1 percentrespectively.
The import of raw materials still expanded along with export growth while import of consumergoods were
induced by a strong Baht. Meanwhile, import of capital good shrunk by 6.6 percent, followedthe 3.3 percent
drop in the last quarter of 2006 due to domestic investment contraction and lower import offuel. However,
import accelerated in April with 11.2 percent expansion, led by the import of capital goodswhich returned to
grow by 8.6 percent, together with continuous growth in raw material and consumer goods import by 18.9 and
18.7 percent respectively. The seasonalized trend also indicated the import recovery in a near future. This
potential import recovery is partly because of the recurring decline of inventories.
- Trade balance was in a surplus of 4,127 million US dollars in the first quarter of 2007,
compared to 2,244.7 million US dollars through out the year 2006 and 224.5 million US dollars deficit in the
first quarter of 2006. However, accelerating imports brought the trade balance into a deficit of 97 million
US dollars in April
- Current account registered a surplus of 5,452.5 million US dollars in the first quarter of
2007,contributed by remarkable trade surplus and a 1,325.2 million US dollars of net services income and
transferswhich was higher than the previous quarter and the same quarter of last year. This was due to the
increasein net income from tourism and transportation, remittance from Thais working abroad and a surplus in
transfer and grants. Current account in April remained in a surplus of 43.7 million US dollars.
- Production sector which expanded less than the aggregate demand for good and service caused
asharp decline in inventories to serve the increasing demand. In the first quarter of 2007, the
agriculturalsector grew by 4.3 percent due to the increase in sugar cane and cassava production while rice
and maizeproduction declined. Non agricultural sector slowed down continuously to 4.3 percent as the major
manufacturing production such as textile, petroleum products, automotives and accessories, electricalgoods
and jewelry dropped due mainly to the slowdown in domestic consumption. Moreover, the decline of
entrepreneurs’ confidence affected the slowdown in investment and service sector such as construction, hotel
and restaurant, wholesale and retail trade and financial services.
- Economic stability: inflationary pressure decreased substantially and international
reservesremained high
- Continually lessen pressure on price. In the first quarter of 2007, headline inflation
rate was 2.4percent, lower than 4.7 percent in 2006, and declined to 1.8 percent and 1.9 percent in April
and May (3)consecutively. This was due to sharply decrease of domestic demand. Core inflation rate was 1.4
percent, compared with 2.3 percent in2006, and declined to 1.2 percent and 0.7 percent in April and May
consecutively. Moreover, producer price index slowed down steadily partly due to Bahtappreciation which
lowered the cost of imports.
- Employment rose and unemployment rate was lower than the same period of 2006. In the
firstquarter of 2007, the numbers of employed personwere 35.31 million people, rose by 1.9 percentcompared
with the same period last year. Thenumbers of employment in agriculture sector were12.42 million people,
increased by 2.2 percentcompared with the same period last year. Inaddition, the numbers of employment in
nonagriculture sector were 22.89 million people rose by1.7 percent. While, unemployment rate was 1.6percent
lower than 1.9 percent from the sameperiod last year.
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Notice (3) In the first 5 months of 2007, headline inflation was 2.2 percent and core inflation
was 1.3 percent.
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