- The Thai economy has continued on an uptrend trajectory, expanding by 6 percent in the first quarter of 2008, gaining better momentum from the 4.8 percent growth in 2007. The recovery in domestic demand helped balance the growth components of the economy while the contribution from net export is smaller than that of last year owing to more robust growth of imports than that of exports. State-owned enterprise budget disbursement improved during the first quarter. The disbursement rate of government budget was closed to the target of 23.5 percent.
- Overall economic stability remained sound, but inflationary pressure has started to build up. In the first quarter, headline inflation rose to 5 percent, substantially higher than 2.9 percent in the previous quarter, fueled by elevating oil and food prices. Current account remained in a surplus of 3,068 million USD, but narrowed from the surplus of 4,689 million USD in the first quarter of 2007. Unemployment rate continued to be low at 1.6 percent.
- Money market rate remained unchanged but real interest rate declined noticeably, caused mainly by rising inflation. Deposits were still in its downward trend. Liquidity consequently declined, yet remained high. Thai baht in nominal term appreciated against USD. In real effective term, it, however, weakened. On average SET index continued to improve despite some short term volatilities caused by rapid capital flows of foreign investors
- Budget balance and cash balance continually registered deficits, under the stance of expansionary fiscal policy in order to stimulate economy. Public debts to GDP stood at 36.35 percent at the end of February 2008, slightly declined from 37.97 percent at the end of 2007.
- In the first quarter, favorable factors to the Thai economy included upward adjustment of salary and minimum wages, increase in farm income supported by rises in prices and production, solid expansion of the economy of Thailand’s trading partners, decline in real interest rate, and improvement in consumer and business sentiment since November of last year.
- The Thai economy is projected to register 4.5-5.5 percent growth in 2008, unchanged from the previous forecast despite higher oil prices and inflation rate. The forecast has been maintained for the following reasons: (i) a higher-then-expected growth in the first quarter contributed by faster-thanprojected recovery in private consumption and investment while the export performance remained robust, (ii) implementation of various additional measures to ensure continuity of the recovery of private consumption and investment as well as to reduce impacts of high oil prices and inflation on the group of needy and SMEs. Those measures consist of tax incentive in order to boost up consumption and investment, setting target for loan expansion to the SMEs and low-income people, upward salary adjustment for low-ranked government officers as well as upward lift of minimum wage. (iii) Other supporting factors include implementations of budget deficit policy and urgent policy in order to strengthening the economy, low interest rate, and increase in employment.
- Risks management in order to support further recovery of the economy concerns: (i) rising inflationary pressure and its impact on needy groups and SMEs as headline inflation is anticipated to increase to 5.3-5.8 percent, pushed by higher prices of oil, commodities, food and raw materials. Meanwhile, weakening Thai baht would also add pressure on domestic prices, (ii) world economic slowdown will put constraint on Thai exports (iii) current account surplus has narrowed and is expected to register a surplus of only 2 percent of GDP, and (iv) improvement of energy efficiency is imperative and should be continuously promoted.
1. Economic performance in Q1 and year 2008
1.1 The Thai economy in the first quarter of 2008 grew by 6.0 percent, higher than an average rate of 4.8 percent in 2007. The satisfactory growth rate indicated that Thai economy is on the path of recovery, supporting by recovery in domestic demand, exports expansion and the increase in number of tourisms that boosted services revenues.
Exports of goods
Export --------------2007------------- 2008
(%YOY) Year Q1 Q2 Q3 Q4 Q1
Agriculture Value 15.8 14.2 17.6 2.6 28.8 45.9
Price 10.3 10.6 2.8 3.1 26.5 26.5
Volume 5.0 3.2 14.4 -0.5 1.8 15.3
Fishery Value 11.1 20.6 15.8 4.5 7.0 -2.5
Price 5.1 6.0 7.0 2.7 4.9 11.0
Volume 5.7 13.7 8.2 1.7 2.0 -12.2
Manufacturing Value 19.1 18.8 18.4 13.8 25.4 20.5
Price 4.9 3.8 5.0 4.4 6.3 7.8
Volume 13.6 14.4 12.7 9.0 18.0 11.8
Total Value 18.1 17.9 18.0 12.6 24.0 21.1
Price 2.0 4.7 5.1 4.5 8.5 9.9
Volume 11.8 12.7 12.2 7.8 14.3 10.2
Source: BOT
Key Highlight
- The Thai economy in the first quarter expanded by 6.0 percent, higher than that of 5.7 percent in the last quarter of 2007 and the annual growth of 4.8 percent. Growth was supported by a broader base expansion, including (i) an accelerating growth of manufacturing sector from 5.7 percent in 2007 to 9.7 percent in this quarter which was in tandem with the continued expansion of exports sector, and the recovery of private investment and consumption (ii) the improvement in agricultural production (iii) a stronger expansion of hotel and restaurant sector due to the rapid increase in number of foreign tourists (iv) a better performance of financial sector than last year that was supported by credit expansion, high interest rate spreads and the increase in incomes from investment in bond and securities market.
- The stronger expansion of manufacturing production was driven by the recovery in private investment and consumption as well as continued expansion of export quantity. In the first quarter, private consumption and investment grew by 2.6 and 6.5 percent respectively, picked up the pace from 1.5 and 0.5 percent increase in 2007. However, domestic demand is still running below aggregate supply, thus containing inflation from the demand side while inventory built up. Export quantity increased by 6.9 percent while revenues from services sector increased at a satisfactory rate, in line with a stronger increase in tourism number of 13.3 percent as compared to 4.6 percent rise in 2007.
- Overall, growth components in Q1 become more balance between the contribution of domestic demand and that of net exports. The adjustment was supported by the rapid domestic demand expansion which helped offset the slowdown in the quantity of net exports.
- Export quantity continued to slow down but was compensated by impressive increase in export prices, and thus resulted in strong expansion of export values. In the remaining months, however, export quantity is likely to trend down in light of a weaker global economic expansion. This will dampen export values, though export prices are likely to continue on the uptrend which is in part supported by agricultural prices. However, the share of agricultural exports of which prices are rising, accounts for a little less than 10 percent of total exports. Moreover, export of agricultural products tends to fluctuate and vary with supply condition. Therefore, contribution of agricultural commodities in driving export expansion is limited and unlikely to sustain. In addition, agricultural production increasingly faces with higher costs of oil, raw materials and labor, which will render competition in the world market more difficult. The situation, therefore, has stressed on urgent need of productivity improvement.
- Growth of the fast growing manufacturing products which accounts for a larger share in exports continued to slow down. They are, for example, computers and part thereof, air conditioners, auto and parts thereof, plastic products, jewelry, rubber products and paper products.
- Import accelerated both in terms of quantity and prices and resulted in trade deficit. In the first quarter, import values increased by 34.5 percent, accelerated from yearly average rate of 9.6 in 2007, and turned trade balance into a deficit of $ 109 million, the first deficit in 6 quarters. The main contributors for the acceleration in import values are as follows:
- The strong expansion of demand for capital in tandem with the recovery in private investment. Demand for imported capital goods picked up from a very low base in 2007, a period of investment contraction and a reduction in demand for capital goods. In the first quarter of 2008, the quantity of imported capital picked up by 32.8 percent while its import prices increase moderately by 4.9 percent.
- The import values of fuel and lubricants increased rapidly by 68 percent. This is attributable to the rise in prices of 48 percent and the rise in import quantity of 9.7 percent, the first increase in 4 quarters. The steady increase in crude oil price of 63.5 percent raised value of crude-oil imports by 79.4 percent. The implied increase of quantity of crude oil import was driven by an increase demand of refinery in Thailand and thus resulted in a reduction of the import quantity of refinery products.
- The expansion of exports and domestic demand together with the increases in import prices resulted in a strong expansion of import value of raw materials. In the first quarter, import prices of raw materials increased by 9.4 while import quantity increased rapidly by 26.0 percent.
- Import value of consumer goods picked up by 37 percent due to the expansion in import quantity of 30.7 percent. The steady baht appreciation as compared to baht value in 2007, together with deposit interest that remained lower than in 2007, encouraged consumers with high purchasing power to increase their spending on imported consumer goods
Import of goods
--------------2007------------- 2008
(%YOY) Year Q1 Q2 Q3 Q4 Q1
Consumption goods Value 13.80 7.2 9.7 10.3 27.2 37.3
Price 3.6 1.5 2.6 5.1 5.3 5.0
Volume 9.8 5.6 6.9 4.9 20.8 30.7
Raw materials Value 15.1 15.3 12.2 13.4 19.4 26.0
Price 5.8 5.7 5.9 5.4 6.2 9.4
Volume 8.7 9.0 6.0 7.6 12.4 15.2
Capital goods Value 3.7 -6.6 7.2 7.6 6.4 39.4
Price 2.2 1.6 1.9 2.3 2.9 4.9
Volume 1.5 -8.1 5.1 5.2 3.4 32.8
Fuel and Lubricant Value 2.8 -4.0 -2.9 -3.3 22.1 68.0
Price 8.1 -0.6 0.4 2.7 31.0 48.0
Volume -5.0 -3.4 -3.3 -5.8 -6.8 13.5
Total Value 9.6 5.9 7.3 8.4 16.6 34.5
Price 5.4 3.4 3.4 4.1 10.5 15.6
Volume 4.1 2.4 3.8 4.1 5.5 16.3
- The disbursements of central government and state-enterprises budgets in the first quarter were closed to the targets.
- The total disbursement of budget registered at 368,952 million baht which is equivalent to 22.2 percent of the budget and closed to the target of 23.5 percent. The disbursement of investment expenditures amounted to 76,744 million baht while current expenditures with debt-repayment and was at 292,173 million baht and disbursement of carry-over was at 32,972 million baht.
- Disbursement of state enterprises budget was at 54,952 million baht, higher than 35,305 million baht in the same period last year.
- Overall, the budget disbursement in the first quarter followed its normal path. Compare to the same period last year (of 407,395 million baht), however, the large disbursement of the same period last year was attributable to the delay in an implementation of Budget Act in 2007 and thus the budget that should have been disbursed if without delay was postponed and added up into the January-March quarter. Together with higher price level, real government consumption declined by 0.1 percent in the first quarter of 2008 while public investment increased by 2.0 percent.
(Continue to).../-The faster pace of..
- Overall economic stability remained sound, but inflationary pressure has started to build up. In the first quarter, headline inflation rose to 5 percent, substantially higher than 2.9 percent in the previous quarter, fueled by elevating oil and food prices. Current account remained in a surplus of 3,068 million USD, but narrowed from the surplus of 4,689 million USD in the first quarter of 2007. Unemployment rate continued to be low at 1.6 percent.
- Money market rate remained unchanged but real interest rate declined noticeably, caused mainly by rising inflation. Deposits were still in its downward trend. Liquidity consequently declined, yet remained high. Thai baht in nominal term appreciated against USD. In real effective term, it, however, weakened. On average SET index continued to improve despite some short term volatilities caused by rapid capital flows of foreign investors
- Budget balance and cash balance continually registered deficits, under the stance of expansionary fiscal policy in order to stimulate economy. Public debts to GDP stood at 36.35 percent at the end of February 2008, slightly declined from 37.97 percent at the end of 2007.
- In the first quarter, favorable factors to the Thai economy included upward adjustment of salary and minimum wages, increase in farm income supported by rises in prices and production, solid expansion of the economy of Thailand’s trading partners, decline in real interest rate, and improvement in consumer and business sentiment since November of last year.
- The Thai economy is projected to register 4.5-5.5 percent growth in 2008, unchanged from the previous forecast despite higher oil prices and inflation rate. The forecast has been maintained for the following reasons: (i) a higher-then-expected growth in the first quarter contributed by faster-thanprojected recovery in private consumption and investment while the export performance remained robust, (ii) implementation of various additional measures to ensure continuity of the recovery of private consumption and investment as well as to reduce impacts of high oil prices and inflation on the group of needy and SMEs. Those measures consist of tax incentive in order to boost up consumption and investment, setting target for loan expansion to the SMEs and low-income people, upward salary adjustment for low-ranked government officers as well as upward lift of minimum wage. (iii) Other supporting factors include implementations of budget deficit policy and urgent policy in order to strengthening the economy, low interest rate, and increase in employment.
- Risks management in order to support further recovery of the economy concerns: (i) rising inflationary pressure and its impact on needy groups and SMEs as headline inflation is anticipated to increase to 5.3-5.8 percent, pushed by higher prices of oil, commodities, food and raw materials. Meanwhile, weakening Thai baht would also add pressure on domestic prices, (ii) world economic slowdown will put constraint on Thai exports (iii) current account surplus has narrowed and is expected to register a surplus of only 2 percent of GDP, and (iv) improvement of energy efficiency is imperative and should be continuously promoted.
1. Economic performance in Q1 and year 2008
1.1 The Thai economy in the first quarter of 2008 grew by 6.0 percent, higher than an average rate of 4.8 percent in 2007. The satisfactory growth rate indicated that Thai economy is on the path of recovery, supporting by recovery in domestic demand, exports expansion and the increase in number of tourisms that boosted services revenues.
Exports of goods
Export --------------2007------------- 2008
(%YOY) Year Q1 Q2 Q3 Q4 Q1
Agriculture Value 15.8 14.2 17.6 2.6 28.8 45.9
Price 10.3 10.6 2.8 3.1 26.5 26.5
Volume 5.0 3.2 14.4 -0.5 1.8 15.3
Fishery Value 11.1 20.6 15.8 4.5 7.0 -2.5
Price 5.1 6.0 7.0 2.7 4.9 11.0
Volume 5.7 13.7 8.2 1.7 2.0 -12.2
Manufacturing Value 19.1 18.8 18.4 13.8 25.4 20.5
Price 4.9 3.8 5.0 4.4 6.3 7.8
Volume 13.6 14.4 12.7 9.0 18.0 11.8
Total Value 18.1 17.9 18.0 12.6 24.0 21.1
Price 2.0 4.7 5.1 4.5 8.5 9.9
Volume 11.8 12.7 12.2 7.8 14.3 10.2
Source: BOT
Key Highlight
- The Thai economy in the first quarter expanded by 6.0 percent, higher than that of 5.7 percent in the last quarter of 2007 and the annual growth of 4.8 percent. Growth was supported by a broader base expansion, including (i) an accelerating growth of manufacturing sector from 5.7 percent in 2007 to 9.7 percent in this quarter which was in tandem with the continued expansion of exports sector, and the recovery of private investment and consumption (ii) the improvement in agricultural production (iii) a stronger expansion of hotel and restaurant sector due to the rapid increase in number of foreign tourists (iv) a better performance of financial sector than last year that was supported by credit expansion, high interest rate spreads and the increase in incomes from investment in bond and securities market.
- The stronger expansion of manufacturing production was driven by the recovery in private investment and consumption as well as continued expansion of export quantity. In the first quarter, private consumption and investment grew by 2.6 and 6.5 percent respectively, picked up the pace from 1.5 and 0.5 percent increase in 2007. However, domestic demand is still running below aggregate supply, thus containing inflation from the demand side while inventory built up. Export quantity increased by 6.9 percent while revenues from services sector increased at a satisfactory rate, in line with a stronger increase in tourism number of 13.3 percent as compared to 4.6 percent rise in 2007.
- Overall, growth components in Q1 become more balance between the contribution of domestic demand and that of net exports. The adjustment was supported by the rapid domestic demand expansion which helped offset the slowdown in the quantity of net exports.
- Export quantity continued to slow down but was compensated by impressive increase in export prices, and thus resulted in strong expansion of export values. In the remaining months, however, export quantity is likely to trend down in light of a weaker global economic expansion. This will dampen export values, though export prices are likely to continue on the uptrend which is in part supported by agricultural prices. However, the share of agricultural exports of which prices are rising, accounts for a little less than 10 percent of total exports. Moreover, export of agricultural products tends to fluctuate and vary with supply condition. Therefore, contribution of agricultural commodities in driving export expansion is limited and unlikely to sustain. In addition, agricultural production increasingly faces with higher costs of oil, raw materials and labor, which will render competition in the world market more difficult. The situation, therefore, has stressed on urgent need of productivity improvement.
- Growth of the fast growing manufacturing products which accounts for a larger share in exports continued to slow down. They are, for example, computers and part thereof, air conditioners, auto and parts thereof, plastic products, jewelry, rubber products and paper products.
- Import accelerated both in terms of quantity and prices and resulted in trade deficit. In the first quarter, import values increased by 34.5 percent, accelerated from yearly average rate of 9.6 in 2007, and turned trade balance into a deficit of $ 109 million, the first deficit in 6 quarters. The main contributors for the acceleration in import values are as follows:
- The strong expansion of demand for capital in tandem with the recovery in private investment. Demand for imported capital goods picked up from a very low base in 2007, a period of investment contraction and a reduction in demand for capital goods. In the first quarter of 2008, the quantity of imported capital picked up by 32.8 percent while its import prices increase moderately by 4.9 percent.
- The import values of fuel and lubricants increased rapidly by 68 percent. This is attributable to the rise in prices of 48 percent and the rise in import quantity of 9.7 percent, the first increase in 4 quarters. The steady increase in crude oil price of 63.5 percent raised value of crude-oil imports by 79.4 percent. The implied increase of quantity of crude oil import was driven by an increase demand of refinery in Thailand and thus resulted in a reduction of the import quantity of refinery products.
- The expansion of exports and domestic demand together with the increases in import prices resulted in a strong expansion of import value of raw materials. In the first quarter, import prices of raw materials increased by 9.4 while import quantity increased rapidly by 26.0 percent.
- Import value of consumer goods picked up by 37 percent due to the expansion in import quantity of 30.7 percent. The steady baht appreciation as compared to baht value in 2007, together with deposit interest that remained lower than in 2007, encouraged consumers with high purchasing power to increase their spending on imported consumer goods
Import of goods
--------------2007------------- 2008
(%YOY) Year Q1 Q2 Q3 Q4 Q1
Consumption goods Value 13.80 7.2 9.7 10.3 27.2 37.3
Price 3.6 1.5 2.6 5.1 5.3 5.0
Volume 9.8 5.6 6.9 4.9 20.8 30.7
Raw materials Value 15.1 15.3 12.2 13.4 19.4 26.0
Price 5.8 5.7 5.9 5.4 6.2 9.4
Volume 8.7 9.0 6.0 7.6 12.4 15.2
Capital goods Value 3.7 -6.6 7.2 7.6 6.4 39.4
Price 2.2 1.6 1.9 2.3 2.9 4.9
Volume 1.5 -8.1 5.1 5.2 3.4 32.8
Fuel and Lubricant Value 2.8 -4.0 -2.9 -3.3 22.1 68.0
Price 8.1 -0.6 0.4 2.7 31.0 48.0
Volume -5.0 -3.4 -3.3 -5.8 -6.8 13.5
Total Value 9.6 5.9 7.3 8.4 16.6 34.5
Price 5.4 3.4 3.4 4.1 10.5 15.6
Volume 4.1 2.4 3.8 4.1 5.5 16.3
- The disbursements of central government and state-enterprises budgets in the first quarter were closed to the targets.
- The total disbursement of budget registered at 368,952 million baht which is equivalent to 22.2 percent of the budget and closed to the target of 23.5 percent. The disbursement of investment expenditures amounted to 76,744 million baht while current expenditures with debt-repayment and was at 292,173 million baht and disbursement of carry-over was at 32,972 million baht.
- Disbursement of state enterprises budget was at 54,952 million baht, higher than 35,305 million baht in the same period last year.
- Overall, the budget disbursement in the first quarter followed its normal path. Compare to the same period last year (of 407,395 million baht), however, the large disbursement of the same period last year was attributable to the delay in an implementation of Budget Act in 2007 and thus the budget that should have been disbursed if without delay was postponed and added up into the January-March quarter. Together with higher price level, real government consumption declined by 0.1 percent in the first quarter of 2008 while public investment increased by 2.0 percent.
(Continue to).../-The faster pace of..