2.3 Key Assumptions for 2008 Projection
(1) The global economy is expected to grow by 4.0 percent, an upward revision from the assumption
of 3.8 percent in the previous projection. The revised growth assumption of the world economy of 4.0 percent
remained lower than the growth rate of 4.9 percent in 2007 which reflected the deceleration of economic
expansion in the US., Japan, East Asia and Southeast Asia. The reasons for upward revision from 3.8 percent
in previous projection is attributable to stronger economic expansion in the US., China and Malaysia and
South Korea than previously expected This offsets the less than expected growths in Hong Kong and Eurozone.
The stronger growth of the world economy than previously forecasted resulted in a stronger expansion of Thai
exports in the first half of the year than previous projection.
(2) Dubai crude oil price in 2008 remains the same as in previous projection of 110-120 U.S.
dollars per barrel, up 67 percent from an average price in 2007 which was at 68.83 USD per barrel. In the
second quarter, average Dubai crude oil price was at 117.02 USD per barrel, up 77.8 percent from the same
period last year, and accelerated from an average 91.5 USD per barrel in the first quarter. Nonetheless,
crude oil price leveled off in the latter half of July as world economic deceleration becomes more
materialized. On August 13, Dubai crude oil price dropped to 109.6 USD per barrel, from its peak of 138.97
USD per barrel in July. In addition, crude oil price is likely to be more moderate in the remaining of 2008,
in line with the global economy deceleration and the more stable value USD.
(3) Export price in term of US dollar is expected to increase by 9.3 percent, up from previous
projection of 7.0 percent. Meanwhile, import price is projected to rise by 14.6 percent, higher than 11.0
percent in previous projection. This revision is in line with recent data that suggested a faster pace of
export prices increase than previously expected. However, commodities and oil prices are likely to be
moderate in the latter half due to the slowdown in demand and supply response in early 2008. However, the
increases in import at a faster pace than export price will deteriorate term of trade further, in line with
the stronger increase in import prices of oil and raw materials than the increase in prices of agriculture
and export-oriented manufacturing commodities.
2.4 Economic outlook for 2008: Thai economy is expected to grow at 5.2 - 5.7 percent with 6.5-7.0
percent of headline inflation and a current account surplus at 2.6 percent of GDP
(1) In the press release on the 26th May 2008, Office of the National Economic and Social
Development Board (NESDB) projected that the Thai economy will grow at 4.5-5.5 percent with 5.3-5.8
inflation rate and a current account surplus at 2.0 percent of GDP
(2) In this release on the 25th of August 2008, NESDB has revised the GDP forecast to 5.2-5.7
percent upward from the previous projection of 4.5-5.5 percent. The upward revision is underlined by the
following reasons:
(2.1) Higher-than-expected economic growth in the first half will offer a springboard
for further growth. Thus, probability for economic growth of less than 5 percent is unlikely.
(2.2)Thai exports remain solid with a better performance than expected in the first 7
months of the year. The robust performance in the first 7 months suggests that expected export slowdown in
the later half will be smaller than earlier anticipated. Better-than-expected export growth will help
compensate for slowdown in domestic demand.
(2.3)Domestic demand are likely to accelerate in the later half of the year from various
supporting factors including 6 measures to solve economic problems, upward salary and minimum wage
adjustment, implementation of tax measures to boost consumption and investment, credit measures for
grassroots economy and high agricultural prices. Meanwhile price of oil and consumer products are likely to
soften and help ease inflationary pressure especially in the last quarter. However, all in all for the year,
domestic demand in 2008 will remain weak and softened than earlier forecast.
2.5 Economic growth components in 2008
2.5.1 Demand side
(1) Total consumption expenditure is expected to grow by 3.5 percent, downwardly revised
from the previous projection of 4.7 percent. Both government and private expenditure were revised down due
to higher than expected inflation rate. The slower-thanexpected of domestic demand was already prevailed in
the first half.
(2) Total investment is likely to expand by 6.2 percent, revised down from 8.5 percent
in the earlier projection. The downward revisions were observed in both public and private investment.
Private investment and public investment expanded by 7.3 and 3.0 percent respectively. The revision of
private investment stemmed from a slowdown in investment in the second quarter. Meanwhile, imports of
capital good tend to moderate whilst production cost remain high. Market opportunities are also restrained
by risks from the global downturn.
(3) Value of exports in USD terms is projected to increase by 16.8 percent, revised
upwardly from 13.3 percent in the previous forecast, attributable to an upward revision of export volume to
8.0 percent following the latest export performance in the first seven months which exhibited higher-
thanexpected volume and price of exports. Nevertheless, it is likely that export volume for the rest of this
year will be moderate due to the world slowdown and also high base effect of last year. Moreover, export
price is also revised up following rising oil and agricultural products’ prices. Potential export products
expected to grow strongly include rice, cassava, food, electronics and vehicles and parts. Export volume of
goods and services is projected to grow by 8.5 percent, higher than 7.1 percent in 2007.
(4) Value of imports is likely to accelerate in the second half of the year in line with
domestic investment and consumption. Total value will increase by 23.6 percent, notably up from 9.1 percent
in 2007. This projection was revised upwardly from 22.0 percent in the previous projection. The revision is
a result of the downward adjustment in volume following the slower growth in the second quarter. However,
import price was revised upwardly in line with the recent rising trend of commodity prices particularly
faster-than-anticipated increase in prices of iron and gold. Oil prices also remain high as expected. Import
volume of goods and services is forecasted to increase by 8.4 percent, speeding up from 3.5 percent in 2007.
(5) Trade balance is expected to register a surplus of 3.6 million USD. Combined with a
surplus in service account, it is expected that current account will be in surplus of around 7.5 billion
USD, or accounted for 2.6 percent of GDP, slightly higher than the previous projection due to upward
revision on export value.
2.5.2 Production side: Overall production in 2008 tends to expand at a higher rate than
2007. 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, especially off-season rice which is
expected to increase by 29.3 percent due to incentive from favourable price in the first half of this year
that encouraged farmers to expand planting area and improve crop yields. However, as new crop year output
increase and Vietnam has removed embargo on rice export, and China release rice stock to market in the
latter half of this year, world supply would increase and world price tends to soften. However,
government’s off-season rice pawning scheme since 15 June 2008 helps maintain domestic price at a more
stable level. In addition, the government approved “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 decrease by 3.6 percent in 2008 with early
year front-loaded of output delivery. Meanwhile high gasoline price shifted consumer demand toward
alternative energy, especially gasohol 95 and 91. Cassava price is expected to remain at high level as a
result of higher demand for ethanol production and related industries, and additional demand from China and
Korea for cassava chips and pellets while supply is limited.
(1.3) Rubber: Production of rubber is expected to increase by 5.59 percent in 2008.
Rubber price tends to slow down as a result of increasing world supply and decreasing trend of oil price.
However, natural rubber demands from Europe, America and Japan still expand, and would maintain export
growth potential. In addition, domestic demand for the production of tire and rubber glove industry tends to
increase.
(1.4) Fishery: In 2008, Shrimp production is expected to decline by 15.0 percent as
unpredictable weather dampened production. Another contracting factor is higher production cost, including
price of animal food and gasoline. Export potential tends to grow as Thailand overcame a threat of trade
barrier from the US (Dumping market, and Continuous bond), which is a favorable signal for export to US
market. Furthermore, demand for Thai shrimp in EU market tends to expand, shrimp export is, therefore,
expected to continuously increase.
(2) Industrial sector: In the latter half of 2008 industrial sector tends to slow down,
due to slow recovery of domestic consumption and downward trend of exports especially to key trading
partners. Nonetheless, production in 2008 is likely to expand more than last year, supported by a high
growth of 9.0 percent in the first half of 2008. Particularly, main industries such as electronic,
automobiles and parts, especially motorcycle, alternative energy vehicle, and alternative energy industry,
are on the positive trend. Vulnerable industries are leather, and furniture industry which are depressed by
economic slow down and strong competition from low price foreign products. Therefore, 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)
(3) Construction sector: In the first half of 2008, the construction sector contracted
by 1.4 percent. However, it is expected to be on positive trend, in the latter half of this year. This would
be supported by continuation of Mega project, and tax privilege measure for real estate sector which will
end in March 2009. Moreover, The Deposit Protection Act is another factor to stimulate real estate sector as
financial investment shifts from bank deposit to higher yield investment in property in term of buying for
providing rental or sell after project have completed. However, risk factors in 2008 are construction
material price and rising cost of living, which have significant impact on entrepreneurs’ investment
decision and consumers’ purchasing power.
(4) Tourism sector: The target of foreign tourists is set at 15.7 million
people,increased by 9.8 percent. This year expected income from tourists is 600,000 million baht, which is
greater than 506,435 million baht in 2007. In the first half of 2008, there are 7.9 million foreign
tourists, or 50.3 percent of target. Tourism promotion plan targets on major markets such as Europe, East
and Middle East Asia, which are high purchasing power groups. Strategies try to maintain old market base and
attract new potential market which are Vietnam, Philippine, Russia, East Europe, and Middle East. During
2008-2009 government launches “The Year of Tourism in Thailand” with the approaches to develop tourism
quality and standard as well as to promote new geographical tourism such as “The Royal Coast” and “Thailand
Riviera”. Moreover, the government aims to upgrade Thailand to be “World Class Destination”, and also
promote Small and Medium Enterprises (SMEs) by establishing tourism investment loan scheme, to be further
developed into a tourism bank in the future.
2.5.3 Inflation trend. In 2008, headline inflation is forecasted to be in the range of 6.5-7.0
percent, higher than previous forecast at 5.3-5.8 percent. High inflation is due to price increase in raw
materials, food and agriculture products while oil price still remains high. Furthermore, upward salary and
minimum wage adjustment which has been effective since May will also add more inflationary pressure.
Headline inflation in the first 7 month was 6.6 percent. Given the 9.2 percent inflation rate in July, the
third quarter is likely to record the peak of inflation before it cools down slightly in the last quarter.
Inflation is foreseen to ease in the last quarter of the year based on the following reasons:
- Soften crude oil price led by slowdown in global demand
- High base in the last quarter of 2007 will result in lower percentage increase in
price in Q4.
- The reduction of 3 baht per litre of excise tax imposed on bio-fuel including gasohol
and bio-diesel will help curb down monthly inflation by approximately 1 percent, or around 0.41 percent for
the annual average of inflation.
(Continue to).../2.6 Economic projection..