4.6 Growth components in 2008
4.6.1 Demand side: growth contribution from each component is expected to be more balanced, with domestic demand plays a more significant role in supporting growth than in 2007. Meanwhile, net export of goods and services is expected to reduce their supporting roles. Components for demand growth can be classified as follows:
(1) Total consumption expenditure is projected to increase by 4.5 percent, moderately greater than 3.1 percent in 2007. In addition, public and private consumption are expected to rise by 10 and 3.5 percent respectively.
(2) Investment is expected to grow by 5.8 percent, accelerate from 1.3 percent in 2007, with contributions of 5.0 and 8.0 percent growth in private and public investment respectively.
(3) Projection of export value in term of US dollar is 10 percent increase, slow down from 16.5 percent in 2007 while export quantity is expected to expand by 4.0 percent. On the other side, import is likely to speed up, following the expansion of investment and domestic consumption. The value of import is forecasted to rise by 12.5 percent compare to 8.5 percent in 2007.
(4) A surplus of 7.3 billion US dollar in trade balance associated with a surplus in net service incomes and transfers would result in current account surplus of 9.3 billion US dollar or 3.6 percent of GDP.
(5) Inflation tends to increase to an average of 3.0 — 3.5 percent as a result of higher prices of oil and raw materials while domestic demand in goods and services is also expected to rise. Inflation in October increased to 2.5 and compared to 2.1 percent in the first 9 months of 2007 while producer price index also picked up. Consequently, inflationary pressure on price of goods and services will be strengthened. In addition, Ministry of Commerce (MOC) had already approved upward price adjustment of various kinds of product, including dairy product, instant coffee, vegetable cooking oil, fish source, can fish, passenger cars, and motorcycle9while many of others still waiting to be approved by MOC, such as LPG gas, detergent, fertilizer, and tires.
4.6.2 Production side: Agriculture and manufacturing production tend to expand at similar rate as 2007. While, tourism and real estate sectors are expected to perform better than in 2007. For financial sector, higher growth in credit expansion is expected. Nevertheless, many financial institutions are now entering the transition period, as they have to adapt to the new rules and regulations, such as the BASEL II and new deposit insurance act. Production side outlook is as follows:
(1) Agriculture sector is expected to improve especially in key products, for example:
(1.1) Rice: Production of rice tends to improve due to adequate supply of water and favorable price. High price is expected as a result of slowdown in world supply, as Vietnam has revised down its export target in order to maintain its homeland food security while other major suppliers such as India and Bangladesh were affected by natural disaster. Moreover, government already approved the “Thai rice strategy” in order to improve quality and varieties of “Thai rice product”. This strategy aims to strengthen consumer confidence which will lead to better farmer income.
(1.2) Cassava: Output of cassava is likely to increase as result of greater domestic demand from alternative energy use and animal food production as well as global demand. Hence, cassava price is expected to remain at high level.
(1.3) Rubber: With greater global demand and price speculation in the commodities forward market, both output and price of rubber are expected to increase. In addition, many industries such as tire and rubber glove, have increased their natural rubber usages as syntactic rubber price is increasing with oil prices.
(1.4) Fishery In 2008, the growth in fishery production will mainly focus on king prawn production which accounts for approximately 20 percent of overall shrimp production. Key supporting factors in 2008 are trading facilities such as forward contracts, cold storage plants for perishable products, and agricultural option market. However, risk factors confronting shrimp export are export and import measures regarding food standard, for example, Australia has recently imposed an import risk analysis (IRA) which requires certifications that Thai shrimp products are free from marine diseases.
(2) The industrial sector. Export-oriented production tends to slow down due to a downward trend of key trading partners’ economies. Nonetheless, production for domestic consumption will be nefit from an upward trend of domestic consumption and investment. Particularly, main industries such as electronics, automobiles, petrochemicals, chemical products and paper are on a positive trend. In 2008, challenging factors will be the fact that small entrepreneurs need to improve their standards and quality of products due to continuously changing in structure of global production with strong competition from low cost producers (e.g., China, India and Vietnam) while oil price is also likely to increase. Therefore, development of labors’skill is strongly required because various industries still face with lack of skilled labors.
(3) The construction sector. In 2008, the construction sector will be on a positive trend, particularly residential construction in Bangkok and vicinities. This is because of changing consumer behavior encouraged by surge in oil prices. Demand for construction along the route of mass transit system is likely to substantially increase. Office building and manufacturing constructions are also on an upward trend, stimulated by economic recovery.
(4) The tourism sector in 2008. The target of foreign tourists is set at 15.7 million people, increased from 14.8 million people in 2007. Revenue is expected to be around 600,000 million baht, an increase from 547,500 million baht in 2007. In order to achieve the target, it is necessary to emphasize more on the highend tourist market or revenue-based rather than quantity of tourists. E-Marketing system as well as traditional marketing style will be adopted in order to penetrate the new high potential market while maintaining the original market-base.
5. Economic Policy Management for 2008
The economic management in 2008 under the new government administration should focus on maintaining economic stability in the environment of rising oil prices and global economic slowdown as well as building strong foundation for sustainable economic growth in the long run, with key principles including, enhancing productivity, value creation in order to be more competitive, strengthening domestic economy and developing sound economic foundation for local communities as well as supporting people’s well being. Management guidelines are as follows:
5.1 Building up investors’ confidence by effectively eliminating the obstacles to private investment and accelerating public investment, in order to stimulate an economic growth and to improve productivity for the economy in the long run, which are:
5.1.1 Speeding up public investment in infrastructures which will open up opportunities for investment in related economic activities such as construction and real estate sectors. The government should start the bidding process for 5 lines of mass transit rail within 2008.
5.1.2 Speeding up public administration process to facilitate private investment projects which have planned to start operation next year. This includes pending Environmental Impact Assessment (EIA) to be approved by the National Environment Committee, and encouraging BOI approval projects to start their operations as planned. Moreover, Southern Region Development Strategy should be clearly established as an alternative location for industrial estate development.
5.2 Accelerating budget disbursement in FY 2008 to achieve target of 94 percent disbursement rate of government budget and 90 percent of SOEs investment budget. Mechanism under the committee of government budget execution should be established to clearly and systematically monitor and report the progress of budget disbursement, especially the key strategic policies. Such projects are as follows:
- The National Productivity Enhancement Plan and the Intellectual Infrastructure Master plan (overall budget of 3,272.47 million baht)
- The Well-Being Strategy (overall budget of 15,000 million baht)
- The productivity enhancement in energy use and alternative energy development.
- Priority projects of the National Logistics Development Master Plan.
- Operational Plan for Environmental Governance in Mabtaput area (overall budget of 613.7 million baht)
- Integrated Water Resources Management Plan.
5.3 Promoting exports in the new markets, in particular those countries in the Middle East, Africa and Eastern Europe. In addition, it is required to strictly improve standard of products especially food products. In 2008, regulations for product standard in the world market will become more stringent such as the US food safety law, European Union’s regulation on the Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) which has been effective since June 1, 2007 and Australia’s policy on Import Risk Analysis (IRA) for shrimps and products.
5.4 Promoting tourism sector to recover from a slowdown in 2007, particularly through the security and safety measures for tourists, the planned development of tourist sites, marketing and personnel as well as introducing activities aimed at encouraging domestic traveling, a Thai-style environmentally friendly tourism scheme, a travelintegrated lifestyle tourism activities and introduction of proactive tourism measures for anti-global warming.
5.5 Driving measures on efficiency improvement in energy consumption and promoting alternative sources of energy continuously as well as setting and actively implementing comprehensive energy plan at the national level such as plan for E10/95, E10/91, E20/95, B2 and B5.
5.6 Establishing mechanisms to support business adjustment for various sectors and SMEs which have been affected by changing global supply chain such as textile and garment industry, leather industry and electrical appliances.
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