3.4 Key Assumption for 2009 Projection
(1) The global economy in 2009 is expected to grow by 2.0-2.5 percent, slowdown from 5.1 percent in 2007 and lower than the projected growth rate of 3.7 percent in 2008.(H) This downward revision is due to a general slowdown in world major economies. Economic contraction is seen in the US, Japan, and Europe, while economic deceleration is apparent in China, India, East Asian countries, ASEAN5, as well as Eastern Europe.
(2) Dubai average crude oil price in 2009 is projected at 55-65 U.S. dollars per barrel, which is lower than average price of 68.83 U.S. dollars per barrel in 2007 and estimated price of 95 U.S. dollars per barrel in 2008.
- From the beginning of 2008 until 19 November, 2008, Dubai average crude oil price was at 100.43 US dollars per barrel, a 52.12 percent higher than the price of the same period in 2007.
- However, crude oil price has declined continuously since August 2008 due to followings: (i) World economic deceleration results in the decrease of world demand for oil consumption (ii) Financial crisis has increasingly driven the movement of fund back to the US, partly to cover financial damage. This results in an increase in demand for US currency leading to a stronger US dollar. (iii) Speculation in future market has declined since market risk has increased, and oil market is expected to ease off when the world economy decelerated.
- In the third quarter of 2008, Dubai crude oil price was averaged at 113.32 US dollars per barrel, a slight decrease from average price of 117.02 US dollars per barrel in the second quarter. However, from October to November 2008, Dubai crude oil price was averaged at 58.73 US dollars per barrel. Noticeably, the second half of November, crude oil price dropped below 50 US dollars per barrel. In addition, crude oil price is likely to moderate for some period in line with a slowdown of global economy and appreciation of US currency.
- In 2009, crude oil price can increase from current level as OPEC countries have agreed to lower oil production, starting to be affective in November 2008, and it is possible that OPEC countries will further cut oil production in order to boost the price. Meanwhile, risks from natural disasters and tensions in geopolitics can possibly cause a shortterm volatility of oil price. In addition, in the event of global economic recovery at the end of 2009, oil price will certainly step up from the current level (below 50 US dollars per barrel).
(3) Export price in term of US dollars is expected to increase merely by 3.0 percent. Meanwhile, import price is projected to rise by 6.0 percent. The moderation of export price partly due to the adjustment of baseline price, which has multiplied during 2008 leading by steel, metal, gold, and oil price. It is projected that commodities and oil prices are likely to be moderate in 2009 due to the slowdown in demand and supply response of some commodities such as rice and wheat in early 2008. In addition, prices of energy crops, both corns and tapiocas, are likely to decline along with oil price. In 2009, importprice that is likely to increase at a faster rate than export price will put Thailand in a disadvantage position in term of trade.
3.5 Economic outlook for 2009: Thai economy is expected to grow between 3.0 — 4.0 percent with 2.5 — 3.5 percent of headline inflation and a current account deficit equivalent to 1.2 percent of GDP The Thai economy in 2009 will be able to expand up to 4.0 percent under conditions that (i) Government measures under the framework of economic management in 2009 are efficiently and effectively implemented. (ii) World oil price is not exceed 75 USD per barrel. (iii) The world economy expands not lower than 2.0 percent.
Economic growth components in year 2009
3.5.1 Demand side and economic stability
(1) Total consumption expenditure is expected to grow by 4.3 percent with the expansion of household expenditure by 3.7 percent, higher than the estimate of 2.6 percent for the year 2008. The supporting factors for household expenditure expansion are (i) the inflation rate deceleration (ii) the induced effects from government spending under the framework of government budget deficit and allocation of 100 billion baht. additional budget In this respect, real government spending is forecasted to increase by 8.0 percent.
(2) Total investment is projected to expand by 4.8 percent, slightly higher than the estimate of 2.3 percent for the year 2008. Public investment is expected to accelerate in tandem with the progress of mass-transit projects in the second half of 2009. Private investment is likely to decelerate further as investor will wait to see a clearer world economic situation, domestic political condition as well a clarification of wholesales-retails business act and foreign business act. Moreover, in 2009 financial institutions are expected to tighten their lending practices further, even with sufficient liquidity, due to the concern over NPLs, in particular amid decelerating economic condition.
(3) Export value in US dollar term is projected to increase by 7.0 percent in 2009, substantially lower than the estimate of 20.0 for the year 2008. Both export quantity and volume are likely to decelerate in the presence of sharp economic deceleration and high base in 2008. In this respect, export volume is projected to grow by 4.0 percent the same rate of projection for export price increase of 3.0 percent. In addition, under the situation of the slowdown in demand and excess production capacity in exporting countries in particular China, the price competition is likely to be fiercer. Agricultural production is expected to increase due to supply response in 2008 and thus its price is expected to decline at a faster pace than in 2008.
Overall, the export volume of goods and services is projected to expanded by 4.4 percent, significantly decelerate from 7.4 percent in 2008.
(4) In 2008, imports substantially accelerated from a low base in 2007. The strong import expansion in 2008 was attributable to (i) the import of raw-material and semifinished goods to be used in exportoriented production as well as consumption goods (ii) the import for the purpose of stock accumulation such as gold metal and iron and (ii) vehicles and parts, electronic products. In 2009, imports is likely to substantially slow down owing to weak investment, exports deceleration and weak domestic spending as well as the run down of inventory. In this respect, import volume in US dollar term is projected to increase by 30.7 percent in 2007, before decelerate to 5.0 percent in 2008. Import price is likely to slow down substantially, in particular oil and fuel price which will result in 10 percent increase in import price in US dollar term. The import of services is projected to increase by 5.2 percent, down from the estimated of 7.7 percent in 2008.
(5) Trade balance is forecasted to register a deficit of 6.5 billion US dollar in 2009, larger than the estimated of 1.0 billion US dollar in 2008 due to the strong import expansion in 2008 and, in 2009, exports is likely to decelerate at a faster pace than imports. Together with the forecast of surplus in service balance, current account is projected to record a deficit of 3.5 billion US dollar, equivalent to 1.2 percent of GDP and larger than the estimated deficit of 300 million US dollar for the year 2008.
(6) Economic stability is likely to be favorable. Although current account is likely to record a deficit, it is still at manageable level. With respect to domestic stability, inflation is likely to be at around 2.5-3.5 percent, lower than the estimated of 5.6 percent for the year 2008, due to the decline in oil and commodity prices and weak demand condition. Although, the “6 months, 6 measures” economic package will be expired in early 2009, with a substantially decline in oil price, inflationary pressure is unlikely to increase. Unemployment is forecasted to be in the range of 1.5 — 2.5 percent which is equivalent to additional unemployment of around 500,000- 600,000 persons. In the first 9 months of 2008, unemployment stood at 1.42 percent with average unemployment of 530,000 persons, out of total labor forces of 37.55 million persons.
3.5.2 Production side: Overall production in 2009 tends to decelerate, comparing with 2008. Production side outlook is as follows:
(1) Agriculture sector: It is expected that world demand for crop production will increase at slower rate than world supply; therefore, excess supply and downturn of average price of world crop production will exist in the year 2009. In an addition, food importing countries has turned to produce agricultural product for fostering their own food security system. Thus, world market in the year 2009 will be highly competitive which market will belong to buyers. Consequently, the soften price will lead to the lower growth of farm income next year. The sectoral outlook is as follow:
(1.1)Rice: In 2009 rice production of Thailand tends to turn out satisfactorily both in the first and second crops due to favorable incentive from last year price increase which is highest ever recorded. However, to cope with the downward trend in world market price, government launched rice pawning scheme for crop year 2008/2009, which is effective from 1 November 2008 to the end of April 2009. This scheme will stabilize rice price and support paddy price.
(1.2)Cassava: according to the favorable price development in 2008, farmers are encouraged to expand their harvesting areas. Thus, the output of cassava next year is expected to be 28.891 million tons and harvest areas will increase to 7.824 million Rais, increasing by 13.0 and 5.8 percent, respectively, comparing with 2008 crop year. However, since 70 percent of cassava production of Thailand depends on export market, the contraction of demand in the world market is expected. During the past 1-2 years, China substantially imported tapioca for the purpose of ethanol production in preparation for Beijing Olympic Game. With respect to foreign tapioca market, European Union has increased their production output and thus has yet made advanced order from Thailand. With respect to domestic market, demand is expected to be resembled to that of last year except for demand from ethanol producers. Therefore, an upward adjustment of ethanol price will raise demand for ethanol as income from ethanol production can cover its cost. The price of cassava in 2009 is expected to be at around 1.70 baht per kilogram lower than that of in 2008.
(1.3)Rubber: Production of rubber is expected to increase in 2009 for new generation of rubber tree will be ready to be harvested. In 2009 rubber price tends to decrease from its high price level of 2008 to its normal price level. In 2008 rubber price was higher than fundamental as a result of the rising oil price encouraging the speculation in the commodity market. Moreover, it is projected that rubber demands in world market will slow down as the demand from rubber importing countries, namely Europe, America, Japan India and China decline.
(1.4)Fishery: In 2009 shrimp export is expected to slow down as world financial crisis will cause consumption in major market such as US and EU. shrinking, importers lacking liquidity, importers slowing down payment and delivery as well as importers trying to cut the price down and exporter lacking of order during the period of exchange rate fluctuation. However, as comparing with other exporting countries, shrimps product from Thailand are much more recognized for three standards, namely, product quality and safety, quality control and trace back system and antibiotic free product. Moreover, more than 50 percent of Thai exporters who are proactive and have already made market with modern trade groups and supermarkets in the US, Japan, EU and Canada. Thailand has not only tried to keep present markets but also tried to expand market to new areas such as Russia and Eastern Europe. Thailand and Russia have already concluded Mutual Recognition Agreement on food safety inspection system and accreditation. This will encourage better opportunities for exporting Thai fresh, frozen and canned fishery products to Russia, the new and liberal market. The export opportunity for canned fish is likely to be improved.
(2) Industrial sector: In 2009, industrial sector is likely to soften further from 2008. The manufacturing production sectors that will be negatively affected by global economic deceleration are including textile, electrical appliances and electronic parts, gem and jewelry rubber and rubber products and furniture. This is because the US real estate sector remains depressed. Food and Beverages are well performance. Production sector that are expected to be beneficial from the decline in energy costs are including petrochemical. In up coming year, producers are expected to be able to adjust themselves to changes in world production structure with low cost producers such as China, India and Vietnam.
(3) Construction and Real estate sector are expected to slowdown in year 2009 due to spillover effects of financial crisis on money and capital markets, export market and caused unemployment problem. These effects have contracted purchasing power with a clear warning sign since previous quarter. However, several factors that prevent this sector from a sharp contraction are an attempt from the government to push mega projects and one year extension of real estate taxation (due on March 2009). Risks for producers are (i) the continue volatile construction costs (ii) accessibility to sources of funds (iii) higher financial costs as banks are likely to strict their credit approval and reduce risks
(4) Tourism sector: In services sector, it is likely that the aggressive tourism promotion in 2009 will induce tourism to be higher than in 2008. In this respect, the number of tourists is forecasted to increase to 15 million persons, from 14.5 million persons in 2008. The Thai government launched ‘Visit Amazing Thailand 2009”, to promote both Thai and foreign tourists to travel in Thailand, promote product and tourism service in every attractive area, and concentrate on environmental concern traveling under “7 Greens” idea. Therefore, attracting the rising star market such as Russia, India, Middle East, Spain, and also maintain traditional market such as West Europe as well as main market in Asia such as Japan, Singapore, Korea, and Hong Kong, and expand market base to Vietnam and Indonesia.
(Continue to).../4. Economic Policy..