- The South Korean Economy in Q3 expanded by 3.9 percent (yoy), down from 4.8 percent (yoy) in Q2 and increased by 0.6 percent (qoq) from previous quarter. This was the lowest rate of growth since Q3 of 2003. On production side, the slowdown was mainly attributable to the weakening manufacturing production which is accounted for 32 percent of GDP. The growth rate of industrial production declined from 8.9 percent and 9.0 percent in Q1 and Q2 respectively to 6.5 percent as a result of weakened export to China and other major trading partners. The financial services sector contracted by 0.03 percent (yoy) compare to 15 percent expansion in Q2. The wholesales and retail sales sector slightly improved. With respect to economic stability, liquidity increasingly has tightened due to the substantial capital outflow. In August, loan to deposit ratio hiked to 140 percent. Korean Won constantly depreciated. International reserves continued to decline in an attempt to stabilize currency. The tightened credit condition together with the weakened economic condition of its major trading partners, are likely to drag on Korean economy in Q4. Against this development, the Korean economy is likely to grow by 3.8 percent in 2008, down from 5.0 percent in 2007.
- The Singaporean Economy, GDP contracted by 0.6 percent (yoy) in Q3 compare to 2.1 percent expansion in Q2. The economic contraction was attributable to the deceleration and the contraction of almost all production sectors. This is because the Singaporean manufacturing sectors are mostly exportoriented and thus heavily affected by the slowdown of global economy. The strong output contraction was in pharmaceutical industry and Electronic industry which declined by 35.7 percent and 7.1 percent respectively. The export sector, which is accounted for 230 percent of GDP, contracted by 5.7 percent (yoy) and 13.9 percent (yoy) in August and September respectively and thus current account surplus has perpetually declined. Export to the US and EU declined by 24.5 percent and 23.6 percent in September. For the whole year of 2008, the Singaporean economy is likely to grow by 2.3 percent.
- The Taiwanese Economy contracted by 1.0 percent in Q3 compare to the expansion of 4.3 percent in Q2, the first contraction since 2003. The contraction was attributable to the weakening global economic condition as Taiwan is export dependent economy with the ratio of export to GDP of 74 percent. In Q3, export showed a sluggish growth rate of 0.3 percent down from 9.2 percent in Q2. The growth of electronic exports, the key export sector, decelerated from 9.3 percent in August to 4.6 percent in September dropped. This situation resulted in a contraction of manufacturing production of 1.39 percent in September compare to 0.66 percent expansion in August. Export orders grew by 2.82 percent, the lowest pace in 4 years. Orders from China and US, the most important export markets, fell by 10.79 percent and 2.29 percent respectively which suggested a further slowdown in Q4. Overall, the Taiwanese economy is expected to grow by 2.8 percent, down from 5.7 percent in 2007.
- The Asian economies showed downward trend except for Vietnamese economy. In Q3, Vietnam economy grew by 6.5 percent, stronger rate than that of 5.6 percent in Q2 but weaker than that of 8.5 percent in the same period last year. Countries with high ratio of export to GDP are increasingly affected by global slowdown, including Singapore (230.9 percent to GDP) Vietnam (77 percent to GDP) and the Philippines (42.6 percent to GDP). The rate of export growth has decelerated both in terms of volume due to the reduction in world demand, and in terms of value due to the falling prices of major export commodities such as rice, electronic and parts. Together with the capital outflow and the contraction of stock market,
Asian currencies have continually depreciated. Liquidity started to decline as in other regions as indicated by the rising loan to deposit ratio. This situation is likely to limit investment and consumption expansion in Q4. Against this development, central banks tend to cut their policy rates which are relatively high compare to other regions. In addition, the deterioration of current account balance caused by export slowdown, together with capital outflow, potentially lead to economic instability in some countries such as Vietnam, Philippines, and Indonesia.
The Thai economy is likely to moderate further as the impacts of deteriorating global economic condition on exports will increasingly intensify. Domestic demand continues to soften. However, the favorable factors to economic expansion in the fourth quarter are the government economic stimulus measures, the decline in oil and raw material prices, lower inflationary pressure, and the likely monetary policy loosening.
2.1 Economic factor and condition in the last quarter of 2008
(1) Risk factors/limitations The key risk factors associated with growth prospects of the Thai economy in Q4 are including (i) the deteriorating global economic condition (ii) domestic political uncertainty (iii) the softening business and consumer confidences. The impacts of deteriorated global economy on exports are expected to build up in Q4 as indicated by the slowdown of export volume from 11.8 percent in Q1 and 12.3 percent in Q2 to 9.1 percent in Q3. The slowdown of global economy will also restrain tourism sector expansion, in particular tourism from Europe and America which are directly affected by the crisis. In addition, consumer and business confidences remain low due to the worsening global economic condition and domestic political uncertainty.
With respect to the impacts on financial system, financial losses from foreign asset investment and Credit Default Swaps are likely to be minimal as the ratio of foreign investment and foreign assets to total asset of Thai commercial banks is as low as 8.0 - 10.0 percent. On liquidity front, liquidity in financial system remains ample. Taking into account bond and deposit in financial system, excess liquidity is estimated at around 700-800 billion baht. However, financial institutions are likely to strengthen their lending standards in particular lending to SMEs. Therefore, government policy priority should be given to SMEs liquidity providing through government specialize financial institution to ensure liquidity accession of SMEs.
(2) Supporting factors for economic expansion in Q4 are including:
(2.1) The downward trend of oil price and inflation will lower costs of living for people and production costs of business sector. Inflation in Q4 is expected to be at an average rate of 3.0-3.5 percent. In addition to lower inflation and commodity prices, economic expansion in Q4 will be also supported by “6 months 6 measures”.
(2.2) The downward trend of domestic interest rate. The policy rate is expected to be lowered as domestic demand remained weak and inflationary pressure has substantially subsided as well as policy rates in other countries have continually been lowered in order to reduce risks of hard landing.
(2.3) The speeding up of budget disbursement and government projects under the framework of budget deficit as well as other stimulus measures are expected to support economic activities and restore consumer and business confidences.
(2.4) Export and tourism sectors will continue to expand, though at a slower pace. Advanced orders of around 2-3 months before the sharp deterioration of global economy are likely to drive export to grow at around 10 percent in Q4. In addition, the continuing tourism promotions are likely to support activities during the coming tourism season.
2.2 Economic outlook for 2008
For the whole year of 2008, the Thai economy is expected to grow by 4.5 percent, compare to 4.9 percent in 2007. Inflation is likely to accelerate to 5.6 percent, from 2.3 percent in 2007. Unemployment remains at the same rate as in 2007 at 1.4 percent. Current account will be in deficit of 300 million US dollar, considerably lower than that of 14,049 million US dollar surplus in 2007.
In this press release on 24th November 2008, Office of the National Economic and Social Development Board (NESDB) has revised GDP forecast from 5.2 - 5.7 percent in previous release on 25th August 2008 to 4.5 percent. The downward revision is underlined by following reasons:
(1) The sharper-than-expected global slowdown together with domestic political unrests in Q3 negatively affected tourism sector by more than previously forecast.
(2) The faster-than-expected import growth in all categories such as raw materials, capital goods, fuels and consumption goods which was partially driven by higher price expectations, in particular, prices of metal, gold and iron. Therefore, the contribution from net export is likely to be smaller than what previously forecast.
(3) Investment expansion is slower than previously expected due to the sharper-than-expected global slowdown and its associated impacts on stock market that severely reduced equity prices and household wealth worldwide. This situation has eroded business sentiments and market opportunities. In addition, the political tension that developed to political unrest has reduced investor confidences and caused investment decision to delay.
(4) The faster-than-expected import expansion together with negative impacts of deteriorating global economy and domestic political unrests on tourism sector caused current account surplus to decline by more than previously forecast.
The projection of government current and investment expenditures were revised downward as disbursement rates in Q4 of FY 2008 were lower than previously forecast.
3.1 The economic outlook in 2009: the global economy tends to decelerate further and the economic growth rate is projected at 2.0-2.5 percent
Global economic condition in 2009 is subjected to the recovery of financial and real economic activities in advanced countries. However, financial stresses in major countries are likely to drag on real activities further. The constraints to economic recovery are including: 1) high household and business debts that have accumulated during the period of severely financial crisis in the second half of 2008. 2) The wealth destruction due to the sharp economic slowdown that raised unemployment rate and the sharp and continue reduction of equities and housing prices. Taking into account previous economic cycles caused by banking crisis, the economies of crisis origin usually faced with 4-6 quarters of economic slump before the mild recovery. The current situation indicated that, in Q4, the US, Euro-zone, and Japan are likely to contract by more than previously expected. Whereas, negative impacts on developing and emerging countries are increasingly perceived. Under this circumstance, the US economy and leading countries in Euro-zone are likely to contract further, at least in the first half of 2009, before mildly recover in the second half that would be supported by various measures lunched by the US and Euro-zone. Such as direct liquidity injection for distressed financial institutions, increase the ceiling for deposit insurances, short-term debt providing for distress financial institutions. These measures are expected to ease the tight credit condition. Together with the decline in oil and other commodity prices, the domestic demand tends to recover gradually in the second half of 2009. In Asia, economic condition would be increasingly affected both in financial system and export demand. However, after Asian financial crisis in 1997 financial institutions in Asia have been strengthened which will be the safeguard to banking crisis. However, the sharp reduction of export demand from developed countries might twist economic stability of the export dependent countries with current account deficit and high foreign debt. Under these circumstances,
- The global economic expansion is expected to be at around 2.0-2.5 percent, significantly down from 3.7 percent in 2008. The US, Euro-zone, United Kingdom, and Japan are likely to contract by 0.7, 0.5, 1.3 and 0.2 percent respectively which would lower growth rate of the newly industrialized economies such as South Korea, Singapore, and Taiwan to 3.5, 2.0, and 2.5 percent respectively. Similarly, the growth rate of emerging countries such as China, India, and Russia are likely to decelerate to 8.5, 6.3, and 3.5 percent respectively.
World Economic Growth (% YOY)
2006 2007 2008 2008 (qoq) 2009
Q1 Q2 Q3 total_f Q1 Q2 Q3 _f
World 5.3 5.0 4.8 3.8 n.a. 3.7 n.a. n.a. n.a. 2.0-2.5
United State 2.9 2.0 2.5 2.1 0.8 1.3 0.9 2.8 -0.3 -0.7
Eurozone 2.8 3.0 2.1 1.5 0.7 1.2 0.7 -0.2 -0.2 -0.5
United Kingdom 2.9 3.1 2.3 1.6 0.3 0.8 0.3 0.0 -0.5 -1.3
Japan 2.4 2.1 1.4 0.7 -0.1 0.2 0.6 -0.9 -0.1 -0.2
China 11.6 11.9 10.6 10.1 9.0 9.7 -5.6 12.4 2.7 8.5
Singapore 9.4 7.7 6.9 2.1 -0.5f 2.3 15.7 -5.7 -6.3 2.0
India 9.8 9.2 8.8 7.9 n.a. 7.8 2.2 0.5 n.a. 6.3
Malaysia 5.9 6.3 7.1 6.3 5.7f 6.0 -1.8 2.3 n.a. 4.8
Philippines 5.4 7.2 4.7 4.6 n.a. 4.4 0.3 2.0 n.a. 3.8
Vietnam 7.9 8.2 7.5 6.5 6.5 6.3 n.a. n.a. n.a. 5.5
Source: CEIC, Public agencies and average value from many sources
- The foreign exchange rate market will continue to fluctuate with the appreciation trend of US dollar against other major currencies. The supporting factors for US dollar are (i) US dollar has been substantially depreciated. Although the outlook for the US economy in 2009 remained weak,it is expected to be the first country that recover from the crisis in relative to Eurozone and United Kingdom. (ii) Although the global slowdown negatively affects US export, the consumerled recession tends to cut import by a larger magnitude and improve current account balance which would fundamentally support U.S dollar.
Exchange Rate
Annual avg. 2006 2007 2008f 2009f
US $/Euro 1.26 1.371 1.456 1.387
Yen/US $ 116.3 116.9 108.1 108.9Source: Consensus Forecast (Sep 2008)
- The world economic turmoil will negatively affect global trade expansion which is expected to grow by 4.0 percent, down from 5.0 percent in 2008 due to the contraction of global demand in major economies. Meanwhile, the tendency of U.S dollar appreciation will reduce commodity market speculation. This situation will put downward pressure on commodity prices further, in particular oil and other major commodity prices. In addition, the global liquidity condition is unlikely to be significantly improved in near term due to rising capital demand to offset financial losses, high counterparty risks and equity market downturn that hinder recapitalization. Together with the weaker economic condition, this situation is likely to reduce capital inflow in developing countries both in terms of FDI and stock market investment.