- Dubai crude oil price in 2008 is expected to increase from the average of 68.83 dollars per barrel in 2007 to be around 110-120 U.S. dollars per barrel in 2008, revised upward from the previous forecast of 80-85 U.S dollars per barrel(B) The Dubai crude oil price was averaged at 91.50 U.S. dollars per barrel during the first quarter and at 97.97 U.S. dollars during January to May 22, 2008, up considerably by 67.10 percent from the same period of last year. On May 22, the Dubai price jumped to 128.98 U.S. dollars. The upward revision of assumed oil price was a result of the higher than expected of crude oil price in the first five months, the expected tight oil market and the depreciation in U.S. dollars. However, crude oil price is likely to be slightly leveled off in the latter half of the year as the world economy softens and the U.S. dollar is likely to stabilize.
- Export price in terms of U.S. dollars will increase by 7.0 percent while import price will increase by 11 percent. These unmatched increases are expected to deteriorate term of trade. That said as the prices of oil import and raw material import increase, Thailand will need more of export revenue to finance import as the prices of imports are relatively more expensive. Given that the agricultural products which have enjoyed high rise of their prices account only a little less than 10 percent of total exports. Their price surges are, therefore, not sufficient to cover oil import bills.
*** Note: (B) EIA revised the WTI crude oil price upward from the April forecast of 101 U.S. dollars per barrel to 110 U.S. dollars per barrel in 2008, higher than 72 U.S. dollars per barrel in 2007 . The WTI price will slightly decline to 103 U.S. dollars in 2009. Lehman Brothers forecasted the Brent crude oil price to increase from 72.60 U.S. dollars in 2007 to 103 U.S. dollars in 2008 and 83 U.S. dollars in 2009.
2.2.3 Economic outlook for 2008: Thai economy is expected to grow at 4.5-5.5 percent with 5.3-5.8 percent of headline inflation and a current account surplus at 2 percent of GDP
(1) In the press release on the 25th of February 2008, Office of National Economic and Social Development Board (NESDB) projected that the Thai economy will grow at 4.5-5.5 percent with 3.2-3.7 inflation rate and a current account surplus at 4.1 percent of GDP
(2) In this release on the 26th of May 2008, NESDB maintains the 2008 economic growth projection at 4.5-5.5 percent despite higherthan - expected oil prices and inflation rate. The overall growth is, however, likely to be contributed by different growth components from those projected in the previous forecast. Moreover, the economic growth will ease slightly towards the end of the year as the high base effect kick in saying that the recovery of domestic demand will not be able to completely offset the foreseen dampening contribution of net export volume. Maintaining of the previous overall growth forecast of 4.5-5.5 percent is underlined by the following reasons:
i. Higher-than-expected economic growth in the first quarter will offer a springboard for further growth as the stronger economic momentum is priced in over the coming quarters
ii. Thai exports remain solid with a better performance than expected in both manufacturing and agricultural products
iii. Number of foreign tourists is expected to expand in line with its target at 15.7 million with 4.3 million already traveled to Thailand during the first quarter, increased by 13.3 percent from the same period of last year.
iv. Other supporting factors such as upward salary and minimum wage adjustment, implementation of tax measures to boost up consumption and investment, credit measures for grassroots economy and higher prices of agricultural products will enhance consumption and investment to grow at least at the rate that was previously projected
2.2.4 Projected growth components in 2008. On the demand side, growth contribution is expected to be more balance in 2008, with a larger growth contribution from domestic demand in contrast with a smaller contribution from net exports.
(1) Total consumption expenditure is projected to increase by 4.7 percent, a faster pace than that of 2.7 percent in 2007. Although, oil prices and inflation are higher than those in previous projection (on February 25), the current projection keeps the growth of private consumption unchanged at a rate of 3.8 percent due to additional supporting factors mentioned above (fiscal stimulus package, financial package, upward salary and minimum wage adjustment and, higher prices of agricultural products). Public consumption expenditure is projected to expand by 10.0 percent reflecting backloaded disbursement in the latter half of 2008.
(2) Investment is forecasted to pick up the pace to 8.5 percent growth, stronger than 1.4 percent in 2007 and higher than 6.7 percent in the previous projection. Private investment is projected to grow by 9.3 percent (upward revision from 7.0 percent in previous forecast) and 6.0 percent for public investment. The upward revision is attributable to (i) the strong than expected expansion of investment and imports of capital goods in the first quarter and (ii) the contribution from additional government measures such as
- Tax measures to support community enterprises and SMEs (which are including personal income tax exemptions for unregistered partnerships under Community Enterprises Act with their earning revenues of less than 1.2 million baht a year, corporate income tax exemptions on the net profit of 150,000 baht for corporations and partnerships with their registered working capital of less than 5 million baht
- Tax measures for investment stimulation and competitiveness strengthening. These are including a greater rate of capital allowance for machinery, corporate incomes tax exemption for expenditures on energy-saving machine installation, capital allowance for software, the reduction of specific business tax rate from 3.0 percent to 0.1 percent for property businesses, and a reduction of fee for transfer and mortgage of property from 2 percent to 0.01 percent.
- Housing credit program from Government Housing Bank is expected to stimulate residential investment.
(3) Value of exports in dollar terms is projected to increase by 13.3 percent, upward revision from 12.2 percent in previous projection but lower than 18.1 percent in 2007. The projection for exports quantity is revised upward to 6.3, in line with its strong expansion in the first 4-months. However, growth of export quantity is likely to slow down in the second half of 2008, in tandem with the downward trend of the world economy. In addition, export price is revised upward due to higher oil and agricultural prices. Exports of rice, cassava, foods, electronics, and cars and parts, are expected to grow solidly.
(4) Import value is forecasted to expand at an accelerate rate from 9.6 percent in 2007 to 22.0 percent, upward revision from 15.4 percent in previous projection due to the recovery of investment and consumption reflected in import surge in the first 4 months. The upward revision of import value is the result of both import prices and quantity upward adjustment in line with recent strong expansion of import values.
(5) Trade balance is forecasted to register a surplus of $ 1.5 billion. Combined with surplus in services account, current account balance is projected to register a surplus of around 2.0 percent of GDP, downward revision from 4.1 percent in previous projection.
(6) Inflation rate is likely to pick up the pace to 5.3-5.8 percent, higher than 3.2-3.7 percent in previous projection. This revision takes into account upward pressures from (i) higher costs of oil, raw materials (ii) higher foods and agricultural prices (iii) upward salary and minimum wage adjustment and (iv) stronger domestic demand for goods and services.
2.2.5 Projection conditions for High and Low case
(1) The high case scenario of 5.0 percent expansion or higher. The Thai economy in 2008 is projected to expand at a rate of at least 5 percent under following conditions (i) global economy grow at a rate of at least 3.8 percent. Export sector is capable to adjust to higher cost of production as well as to maintain its current position in the world market. With this condition, the export sector is likely to generate incomes from exports and tourisms by another 13.0-15.0 and 8.0 - 9.0 percent respectively (ii) budget disbursement of at least 85 percent of planned budget for government and stateenterprises. Disbursement priory is given to vocation development projects for low income group and social infrastructure development projects (iii) consumer confidence is fully restored following its reduction in April (iv) a better oil market condition due to the OPEC production expansion. With this condition, crude oil price is likely to decline to the level not higher than yearly average of $ 110-115 per barrel in 2008.
(2) The low case scenario. The Thai economy in 2008 is projected to expand at a slower pace than 5.0 percent under following conditions (i) the world economy slows down at a faster pace than expected with the growth rate of less than 3.5 percent. Under this condition, the spillovers from NPLs and oil prices increases hinder global economic expansion and thus restrain exports growth of the Thai economy (ii) budget disbursement rate fall bellow 80 percent and (iii) yearly average crude oil prices (Dubai) rises to higher than $ 120 per barrel.
"..Base on the assessment of supporting and risk factors including higher — than — expected growth in the first quarter of 2008, It is projected that the Thai economy is likely to register 5.0-5.5 percent expansion..."
(Continue to).../2.3 Production side:..