- The Thai economy in the third quarter of 2007 expanded by 4.9 percent, picked up from 4.3 and 4.2 percent in the second and first quarters. This was driven mainly by private consumption and investment recovery as well as an acceleration of budget disbursement. A vigorous export growth also supported the growth momentum. Overall, GDP in the first three quarters grew by 4.5 percent.
- The economic stability remains in check. Headline inflation was 1.6 percent, subsided from 2.4 and 1.9 percent recorded in the first and second quarters. Average headline inflation during the first 10 months of 2007 was 2 percent. Unemployment rate stood at 1.2 percent in Q3. Meanwhile, current account balance registered a surplus of 2.93 billion USD in the third quarter and of 9.26 billion USD in the first 9 months.
- Interest rate continued to trend down, credits accelerated while deposits slightly slowed down. However, liquidity remained at a high level. Movement in currency and stock markets became more volatile, caused by fluctuation in global financial market. On average, Thai baht appreciated, and SET index increased.
- Budget balance and fiscal cash balance recorded deficits, consistent with the expansionary fiscal policy to stimulate the economy. Public debts stood at 37.84 percent of GDP at the end of September 2007, increased from the 37.72 percent recorded at end of June 2007 but lower than 41.28 percent at the end of September 2006.
- Favorable factors that support the economy in the fourth quarter of 2007 include rising business confidence, declining interest rate and acceleration of government and state-owned enterprise budget disbursement. Export is also expected to remain strong.
- In 2007, the Thai economy is likely to grow at least 4.5 percent. Export is the main driving force although a slowdown is foreseen in the latter half due to prevailing global economic slowdown. Private consumption and investment recover throughout the latter half. Inflation rate will be 2.3 percent. Current account will record a surplus of 6.0 percent of GDP and unemployment rate will remain low at 1.5 percent.
- In 2008, the Thai economy is forecasted to expand by 4.0-5.0 percent. The recovery in domestic demand is expected to offset a slowdown in export. Domestic conditions will be more favorable with such supporting factors as lower interest rate and unemployment rate, budget deficit in the fiscal year 2008 and political certainty. However, downside risks of the forecast are associated with rising and volatile oil prices and world economic slowdown. Inflation rate is projected at 3.0—3.5 percent.
1. Economic Performance in Q3 of 2007
1.1 The Thai economy in the third quarter of 2007 grew by 4.9 per cent, up from the first half of the year, supporting by a recovery in domestic demand, acceleration of government budget disbursement and robust exports despite some slowdowns from the first half of the year. Overall, the Thai economy in the first three quarters of 2007 expanded by 4.5 percent.
Key Developments
Thai economy in the third quarter of 2007 expanded by 4.9 percent, slightly picked up from 4.2 and 4.3 percent in the first and second quarters. The improvement from the first half of 2007 is attributable to a recovery of private consumption and investment, acceleration in government budget disbursement and strong export growth, despite a slowdown from the first half of the year. All in all, the economy grew by 4.5 percent in the first 3 quarters. Economic stability remained in check with low unemployment rate of 1.2 percent, headline inflation rate of 1.6 percent, lower than 2.4 and 1.9 percent in the first and second quarters respectively, and a current account surplus of 2,928 million US dollars (and 9,262 million US dollars in the first 9 months). Positive signs and key developments in the third quarter are as follows:
- Household consumption improved, growing by 1.9 percent, up from 1.3 and 0.8 percent in the first and second quarters respectively. Higher spending were seen in furniture and accessories, electrical appliances, passenger cars and beverage. Low interest rate has been a supportive factor which drive consumer loan to 16 percent expansion. Low inflation also helped encouraging consumption.
- Private investment started to pick up, with a growth rate of 1.1 percent compared to the contraction rate of 2.3 and 0.7 percent in the first and second quarters respectively. The recovery was seen in both machinery and equipment, and construction investment.
- Government disbursement accelerated. Government disbursement rate in the third quarter achieved a target of 26 percent of planned budget, with the government expenditure of 407,027.2 million baht, compared to government disbursement of 348,588.4 million baht in the third quarter of 2006. The disbursement of state enterprise investment budget totaled 78,082.47 million baht, increased from that of 69,449.37 million baht in the same period last year. At 1988 prices, the government expenditure increased by 9.8 percent, continued from 9.4 and 9.2 percent in the first and second quarters respectively. Public - investment expanded by 5.8 percent, accelerated from the first half of the year.
- Structural change in major export market of electronics, chemical, plastic goods and vehicles to the new markets helps absorb the impact of a slow down in export to major markets. Moreover, export of hard disk drive remains strong since Thailand is the main producer of hard disk drive with the export share of 40 percent of the world market. The increased intensity of digital content in various kind of products, namely stereo, camera, mobile phone and television, is also the stimulating factor for hard disk drive export.
- Tourism rebounded, with the number of foreign tourists increased by 2.2 percent compared to only 0.4 percent in the second quarter.
- Imports of capital goods continued to pick up. Import value of capital goods expanded by 7.6 percent, compared to 7.2 percent in the second quarter and the decrease of 6.6 percent in the first quarter. In volume term, capital goods import increased by 5.2 percent, improved from the decrease of 8.1 percent and the increase of 5.2 percent in the first and second quarters respectively. Major capital goods which show increasing signs included electronics, agricultural machinery, and computer components, as well as the import of aircraft of Thai Airways International.
- Restructuring of energy consumption helped the Thai economy to better adjust during the period of high oil prices than in earlier periods. This, together with baht appreciation, also lessened upward inflationary pressures. Such improvements were apparent in higher consumption of bio-diesel and gasohol, which are alternatives to hi-speed diesel and gasoline respectively. This development partially contributed to the reduction in total energy and crude oil imports of 5.8 and 3.6 percent respectively. In addition, the faster capacity expansion of hydro and gas power generation than it was previously planed has allowed for a reduction of Ft for all together 12.31 Stang per unit.
Sectoral economic conditions
- Private investment recovered both in machinery and equipment, and construction. In the third quarter, private investment expanded by 1.1 percent, improved from 2.3 and 0.7 percent contraction in the first and second quarter respectively. Investment in machinery and equipment expanded by 1.3 percent, turnarounded from a decline of 1.4 percent in the first half of 2007. It was evident from an increased sale of commercial cars and an increased import of capital goods of 7.6 percent. Significant improvements were apparent in electrical machinery, agricultural machinery and equipments made of rubber and metal. Private investment in construction expanded by 0.7 percent, recovered from the contraction of 1.2 percent in the second quarter. Investment in construction of residential and commercial buildings increased by 1.9 and 5.1 percent. Construction in manufacturing industry also showed a better sign, albeit a 7.9 percent decline.
One of the key supporting factors for private investment in the third quarter is rising capacity utilization to nearly full capacity in various industries such as paper, chemical product, automobiles, integrated circuits and washing machine. Moreover, business confidence improved due to the improvement in political situation following the approval of the new constitution and the announcement of the election date. Moreover, economic driving measures implemented by the government have made progresses.
In the first three quarters of 2007, however, private investment decreased by 0.6 percent, in which machinery and equipment investment decreased by 0.7 percent and construction investment decreased by 0.4 percent.
- Household consumption picked up modestly. In the third quarter, household expenditure expanded by 1.9 percent, compared to 1.3 percent and 0.8 percent in the first and second quarters, respectively. Consumption in durable goods rose by 0.4 percent, a sharp turnaround from a contraction of 7.4 percent in the first half year. Consumption in passenger cars and household electrical appliances (e.g., television, rice cooker, refrigerator and washing machine) increased due to aggressive sales promotion and fixed installment with low interest rates. Consumption in semi-durable goods expanded by 0.9 percent, compared with a contraction of 0.2 percent in the first half and consumption in non-durable goods, particularly foods, expanded by 2.2 percent.
Nonetheless, overall private consumption in the first three quarters remained weak, expanded by only 1.3 percent. Consumption in durable goods dropped by 4.9 percent and consumption in semi-durable and non-durable goods slowed down. On the contrary, food consumption rose by 3.3 percent.
- Export slowed down both in agriculture and manufacturing products. In the third quarter, exports expanded by 12.6 percent, softened from 18.9 percent in the first half of 2007. Export volume and price increased by 7.8 and 4.5 percent respectively. However, export value in Thai baht expanded by only 1.8 percent and export price dropped by 5.5 percent. This was due to concerns over the US subprime effects on the economy and the Baht appreciation. In the third quarter, Thai Baht averaged 34.06 baht per US dollar, appreciating by 6.88 percent from the forth quarter of last year, led to some postponement of exports. This was revealed in the slowdown of exports in July and September.
- Sluggish growth of agricultural product exports, expanded only by 2.6 percent, compared to a strong growth of 16.0 percent in the first half of the year. The slowdown was contributed mainly by the slowdown in volume term. Major export products which declined included (1) rubber which the supply-drop caused by heavy rainfall and (2) cassava due to a high base effect of export to China in the third quarter of last year for ethanol production. Meanwhile, lower price postponed export of rice.
- Export of manufacturing products expanded well within the same product group as in the earlier period. Export of manufacturing products grew by 13.8 percent, compared to 19.6 percent in the first half of 2007. Main driver of manufacturing product export growth remained the same product group including computer, airconditioner, refrigerator, fan, gems and jewelry, plastic, vehicles and parts, and paper products. However, export in other categories of manufacturing product experienced sharp slowdown. They are microwave, circuit breaker, metal product, motorcycle, radio, and rubber product. Products that started to decline included petrochemical and communication products. Meanwhile, exports of color television, caned pineapple and furniture continued to fall.
- Export of electrical appliances was stimulated by the global climate change, especially in cool-made electrical appliances such as air-conditioning, refrigerator, freezer, and fan. This followed rising demand in the Euro area due to global climate change that created heat wave in the past couple of years. In addition, demand for refrigerators and frozen container as well as electric fan in Asia had considerably risen. Nonetheless, export of color television and radio receiver continuously slowed down following a
decline in export to the US which is major market. This is due to the GSP privileges cut from the US for importing color television, effective since July 2007. Moreover, Thai export has experienced more competition from South Korea who has competitive edge in high-technology products.
- Export of electronics continued to grow, albeit a slowdown in world semiconductor and weakening
intra-regional trade in electronics. As one of the largest manufacturers, accounted for 40 percent of the world market and with technological advancement towards digital featured products namely stereo, camera, mobile phone and television, Thailand continued to enjoy high growth in export of hard disk drive.
- Structural shift in the export markets of key products to new markets helps cushion export slowdown in major markets. Significant changes were observed in key products namely electronics, chemical, plastic goods and vehicles, exporting to the new markets such as China, India, East Europe and the Middle East. This has cushioned a slowdown in major markets which was seen in a contraction in export to the US and Japanese markets of 9.1 and 3.0 percent.
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