1. Economic Performance in Q4 and year 2007
1.1 The Thai economy expanded impressively by 5.7% in Q4, much improved from 4.2, 4.3, and 4.8
percent expansion in the first three respective quarters. In overall, 2007 recorded 4.8 percent
growth, contributed primary by robust export growth while domestic demand remained fragile.
Highlight
- Thai economy registered 5.7 percent growth in Q4 and 4.8 percent growth for the whole year, as compared to the 5.1 percent growth in 2006. This was the domestic demand-led slowdown, while exports expanded robustly both in terms of USD value and volume. Export volume and value in US dollar increased by 11.8 and 18.1 percent respectively. Volume and value of imports grew by 4.1 and 9.6 percent respectively. As
a result, trade surplus reached high level at 11,972.9 million US dollars, significantly higher than the surplus of 994.5 million US dollars in 2006 and improved from the deficit of 8,283.7 million US dollars in 2005, which was the year of substantial increase in oil price, speculation of gold and steel prices and rising import of capital goods. Including the service, income and transfer accounts, the current account
surplus totaled 14,923 million US dollars, accounted for 6.1 percent of GDP. The large current account surplus was the main component of widening balance of payment surplus, which reached 17,102.2 million US dollars, higher than the surplus of 12,741.6 million US dollars in 2006. Large surplus in balance of payment thus caused the baht to appreciate
- The large surplus in trade balance reflected some fundamental changes and cyclical movements. They are : (1) investment cycles slowed down from the high growth period during 2002 - 2003 to the soften period of investment since the second half of 2005, hence causing demand for capital goods to decline; (2) the temporary impact of deteriorating business confidence caused by domestic political uncertainly that has led private investment to decelerate much faster than it should have been in the normal cycle; (3) Increasing competitiveness in electronics and automobiles industries as Thailand has become major world
production base. This has helped strengthen the income base of export which help offset the deficits in oil trade balance; and (4) the restructuring of energy consumption led to higher consumption of alternative energy and improvement of energy efficiency. In 2007, import volumes of crude oil and fuels declined by 5.5 and 5.0 percent respectively. Import values of crude oil and fuels in terms of US dollars increased only by
1.5 and 2.8 percent respectively despite the rises of crude and fuel prices by 7.3 and 8.2 percent respectively.
Major export markets
1995 1997 2002 2005 2006 2007
US 17.8 19.4 19.8 15.3 15.0 12.6
Japan 16.8 15.1 14.6 13.6 12.6 11.9
EU 15 15.1 15.9 15.0 12.9 13.0 12.8
Asean(9) 21.7 21.8 19.9 22.0 20.8 21.3
Middle East 4.5 3.3 3.6 4.0 4.4 4.9
Australia 1.4 1.6 2.4 2.9 3.4 3.8
China 2.9 3.0 5.2 8.3 9.0 9.7
India 0.5 0.5 0.6 1.4 1.4 1.7
Hong Kong 5.2 5.9 5.4 5.6 5.5 5.7
South Korea 1.4 1.8 2.1 2.0 2.1 1.9
Taiwan 2.4 2.7 2.9 2.5 2.6 2.2
South Africa 0.4 0.4 0.5 0.8 0.8 0.9
Others 9.9 8.3 8.0 8.9 9.3 10.6
Source: BOT
- Overall, however, the components of economic growth in 2007 remained unbalanced, as net export was the main engine whereas domestic demand weakened.
- Export growth was concentrated mainly in electronics, vehicles and parts. However, in 2007, agricultural export benefited from substantial increase in export prices of rice, cassava, maize, and rubber. Farm prices increased, and farm income rose by 17.6 percent.
- Export markets have been more diversified. Thai export markets have been more diversified towards new and emerging markets. The evidences shows that export share of new and emerging markets has increased continuously, while that to the original main markets has declined.
- Quarterly economic growth in 2007 as compared to the same quarter of 2006 shows an upward trend from 4.2 percent in the first quarter, to 4.3, 4.8, and 5.7 percent in the last three respective quarters. The seasonally quarter on quarter growth also confirms that the Thai economy had bottomed out since the fourth quarter of 2006. Since then, export, private consumption and investment continued to pick up at a faster pace.
- Employment increased. The number of employed person in 2007 was 36.27 million, rose by 1.6 percent from 2006. The number of underemployment declined by 2.2 percent from 577,900 in 2006 to 565,200 persons in 2007. Average unemployment rate was 1.4 percent.
Economic situation by sectors: Private investment continued to recover, in particular investment in machinery and equipment.
- In the fourth quarter, private investment expanded by 3.9 percent, noticeably accelerated from 1.1 percent in the third quarter and significantly improved as compared to the contraction of 2.3 and 0.7 percent in the first and second quarters. Investment in machinery and equipment expanded accelerately at 7.4 percent, as was reflected in the 15.9 percent increase in capital imports.
Capacity Utilization continued to increase
2006 2007
(%) Year Year H1 Q3 Q4
Capacity Utilization 73.9 76.1 75.5 75.7 77.7
Beverage 77.1 81.6 81.5 76.6 86.9
Pulp and paper products 91.0 91.2 90.3 91.2 92.8
Chemical products 93.8 95.7 90.4 101.0 101.0
Petroleum products 87.2 87.7 87.5 90.8 84.8
Construction materials 81.6 79.4 79.4 81.6 77.1
Vehicles and equipment 79.2 81.8 77.4 85.5 86.8
Electronic products 76.1 81.5 74.1 83.8 93.9
Exports <30% of production 79.6 81.0 80.1 82.5 81.1
Exports 30 — 60% of production 71.7 72.2 73.8 68.6 72.5
Exports >60% of production 68.5 72.4 71.1 71.3 76.3
The imports of electrical machinery, agricultural machinery, computer parts and equipment exhibited strong growth. However, private investment in construction contracted by 8.5 percent after its rebound in the third quarter. The contraction of investment in construction was attributable to the decline of investment in housing construction, and industrial plants construction which declined by 8.4 and 26 percent respectively while investment in commercial building construction increased by 11.7 percent.
Key supporting factors for the recovery of private investment in the second half of 2007 are including: (i) The improvement in underlined fundamental factors which are low interest rate, increasing capacity utilization, and the improvement in market prospects. Some industries such as paper, chemical product, petroleum product, automobiles, tire, integrated circuit, hard disk drive and washing machine are
running at nearly their full capacities. This has prompted investment demand. (ii) The improvement in investor sentiments as political uncertainty subsided. Nevertheless, there were factors that hindered full-fledged recovery of investment such as: (i) policy uncertainty regarding to public investment in infrastructure, for example, investment in masstransit system; and (ii) uncertainty regarding to changes in
laws and regulations that could unfavorably affect investment. They are, for example, Foreign Business Act, Wholesale and Retail Act, a delay in environment impacts assessments of various projects, and unclear direction regarding carry capacity of Eastern Seaboard and new potential industrial estates; and (iii) business confidence, on average, remained weak, though improved in the fourth quarter.
Household consumption expanded only slightly and remained weak. In the fourth quarter, household
expenditures expanded by 1.6 percent, softened slightly from 1.8 percent in the third quarter but noticeably improved from an expansion of 1.1 percent in the first half of the year. Expenditure on semi - durable goods increased by 2.7 percent while spending on foods and services increased by 2.1 and 4.3 percent respectively. However, expenditure on durable goods decreased by 8.9 percent, after its small expansion of 0.4 percent in the third quarter. The contraction was primarily contributed by a decline in passenger car sales by 45.2 percent in December and by 22.4 percent in the fourth quarter1. This was because consumers’ postponement
of their purchase until excise tax reduction for small and energy-saving car (ECO car) and gasohol-use car (E20) is in effect. However, expenditure on other durable goods continued its momentum.
Nevertheless, in the fourth quarter, imports of consumption goods increased by 20.8 percent, which was partially encouraged by Baht appreciation. The expansion in import of durables was particularly high for camera, accessories, and electrical appliances.
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