2.3 Economic Projection for 2009
Global economic recession is a key risk factor for the Thai economic outlook in 2009. Incorporating this factor, the Thai economy is predicted to contract quite sharply in the first half of 2009 when the world economy hit bottom and severely affect Thai’s export, tourism and investors’ confidence. However, the economy is expected to recover in the latter half, supported by the implementations of the following packages: 1) stimulus package of around 116,700 million baht as a supplementary to the FY 2009 budget; 2) measures in the urgent economic recovery plan; 3) the medium and longterm public investment scheme; 4) acceleration of disbursement of FY 2009 and 2010 government budget; and 5) more accommodative monetary policy together with credit expansion and credit guarantee scheme for SMEs on loans. In addition, sharp drop in oil prices is also a positive factor for the economy. However, the stimulus policyinduced rebound in economic activity in the second half of the year might not completely offset the impacts of export and tourism severe contraction in the first half.
(1) Key Assumption for 2009 Projection
(1.1) The global economy in 2009 is expected to grow by (-0.5) to 0.5 percent. This is downgraded from an estimated of 2.0-2.5 percent assumed in the 24th November 2008 projection. This is a sharp slowdown from the expansion of 5.0 percent in 2007 and 2.8 percent in 2008. The downward revision is due to a broad-based contraction in major advanced economies such as the US, Japan, Eurozone, as well as key Asian economies including South Korea, Taiwan, Hong Kong, and Singapore. Meanwhile, the economy of China, India, and other Asian countries decelerated noticeably.
(1.2) Average Dubai crude oil price in 2009 is projected at 45-55 US dollar per barrel, down from the previous projection of 55-65 US dollar per barrel. Crude oil price in 2009 is projected to decline sharply, from an average 68.83 US dollar per barrel in 2007 and 93.65 US dollar per barrel in 2008. This is due to a steep decline in world demand for crude oil led by economic contraction.
(1.3) Average export and import prices are expected to decrease, in line with the decrease of crude oil and commodity prices. Under the situation of rapid drop in world demand for commodities and goods, pricecompetition is likely to be tougher. Therefore, export and import prices are forecasted to fall by 6.0 and 7.0 percent respectively.
(2) Economic outlook for 2009: The Thai Economy is expected to grow (-1) — (0) percent, which was revised down from the projection of 3.0-4.0 percent growth in the previous projection. The downward revision and dampened outlook is due to the worsening global economic condition which already resulted in a sharp contraction of export and tourism sectors. It is likely that the hard hit from global recession will be seen in the first half of 2009. The gloomy prospect is also worsened by more stringent lending standard imposed by most financial institutions while business sentiment has not yet improved, given that stress from economic slowdown has lingered. To survive the liquidity tightness and to avoid further risks, business sectors are expected to cut down their production and employment, especially in industrial sector, construction and real estate sector, wholesale and retail trade sector, transportation sector, and financial sector.
(2.1) The Thai Economy is expected to contract in the first half of 2009 due mainly to a sharp contraction in export and tourism sectors caused by the global economic recession. The contraction of the world economy is predicted to be deep in the first half of 2009, and consequently, Thai export and tourism sectors will be hit severely. As the latest data show, export value, in US dollar term, decreased by 26.5 percent in January, along with the sharp contraction in its major export markets such as China (-17.5 percent), South Korea (-32.1 percent), Singapore (-34.8 percent), and Vietnam (-24.2 percent). Private consumption and investment have declined dramatically in various countries. Export contraction in various Thailand’s export markets and their import contraction suggest further deterioration of Thais’ export sector. Meanwhile, the Tourism Authority of Thailand lowered their foreign tourists target to 14 million people, equivalent to 3.7 percent reduction from 2008. This decline implies an approximately 20,000 million baht loss of tourism income.
contraction in 2009
% yoy 2008 2009_f World 2.8 (-0.5) — (0.5) United State 1.3 (-2.3) -(-1.6) Euro Zone 0.7 (-2.5) -(-2.0) United State 0.7 (-3.2) -(-2.8) Japan -0.7 (-3.0) -(-2.6) South Korea 2.5 -3.5 Taiwan 0.1 -3.0 Hong Kong 2.6 -3.8 Singapore 1.2 -3.8 Thailand 2.6 (-1) — (0) Source CEIC, Public agencies (Continue to).../2.3 Economic Projection..
(2.2) The Thai economy is, however, expected to recover with positive GDP growth rate in the later half of 2009. The supporting factors for economic recovery include fiscal stimulus packages, medium and long term public investment scheme, and acceleration of budget disbursement under fiscal deficit framework together with loosened monetary policy. Incorporating these factors, NESDB forecast a positive growth in the second half of 2009 With additional policy measures on the way, growth for the second half of 2009 could surprise on the upside. The followings are conditions/factors which will promote positive growth in the latter half of the year:
(2.2.1) Global economy is bottomed out in the first half of 2009. The second half will likely to witness the positive effects of the following measures and policy. 1) historical low level of interest rates in most countries after several aggressive cuts in 2008, and 2) fiscal stimulus packages which are being implemented in various countries. The problem in US financial market improves while the emerging financial losses in Eastern Europe are smaller than those in the US and Western Europe. Under such condition of the world economic recovery, export and tourism sectors are expected to recover in the second half.
(2.2.2) The economic measures under supplementary budget worth 116,700 million baht must be ready to disburse in March. With the accelerated disbursement rate in the second quarter, it will further stimulate private consumption in the second half of the year to expand at a faster pace.
(2.2.3) Government budget disbursement is accelerated to meet the target of 94% disbursement rate for FY 2009. In parallel with such acceleration, preparation for budget allocation in FY 2010 should also be carried out in a bid for front-loaded disbursement of FY 2010 government budget and avoid the delay of budget execution. The timely implementation by the end of 2009 will provide additional boost to the economy. In this respect, project prioritization and details must be laid out as soon as the first FY 2010 budget reading is passed by the parliament. This must be done concertedly with preparation of medium and long term plan for public investment, the plan that aims to restore economic condition, business confidence, job creation, and to improve country competitiveness.
(2.2.4) The expedition of key public projects under medium and long term investment plan will not only revive the economy in the short rum but will also help enhance competitiveness of the country in the longer term. The plan should be implemented as soon as in the last quarter of CY 2009.
(2.2.5) Guarantee scheme for prices of main crops including rubber, rice, cassava, maize, and oil palm, will help stabilize agriculture prices and sustain farm income for farmers.
(2.2.6) Eased monetary policy together with credit guarantee and soft loans for SMEs through state-owned financial institutions will support the business sector to continue its operation and production. Moreover, entrepreneurs with healthy balance sheet take this opportunity to improve their competitiveness so that they can compete more efficiently when global economy turn around.
(2.2.7) Average Dubai crude oil price is lower than 60 U.S. dollar per barrel which will be the case under which the reduction in demand outweighs the production cut. Significant supply disruption is not considered to be likely.
(3) Projected growth components in 2009
(3.1) Household consumption is projected to increase by 2.2 percent, relatively stable compare to that of 2.7 percent in 2008. The continue expansion of household consumption is expected to be supported by economic stimulus package that includes free water, electricity for the poor, and subsidized public transport, an extension of tax allowances, and cash transfer to low-income people. Moreover, the package will also provide compensation and skill training to both unemployed and prone groups as well as employment opportunity under government projects.
(3.2) With a deepening global recession and expected contraction of global trade, Thailand’s exports of goods and services are expected to decline. In this respect, export volume and value are forecasted to drop by 6.5 and 13.1 percent respectively. The decline in value, as compared to that in 2008, could reach 380,000 million baht. On the other hand, volume of import is expected to decline faster under the situation of export and investment contraction while inventory stock remains high. Import volume and value are projected to decline by 7.0 percent and 14 percent, respectively.
In 2009, trade balance and current account will be in surplus of approximately 1.8 and 2.3 billion US dollar, respectively. The surplus in current account is equivalent to 0.9 percent of GDP.
(3.3) Number of foreign tourists is predicted to drop by 3.7 percent, down from 14.5 million people in 2008 to 14 million people in 2009. This will cause tourism income to decline by 20,000 million baht.
(3.4) Private investment is likely to decrease by 3.0 percent due to the increase in overcapacity, low business sentiment, and limited credit extension. Cut down in production and employment level in response to contraction in domestic and external demand has lead to over-capacity in some sectors. Larger output gap will consequently depress weaker employment and corporate investment outlook.
(3.5) The government consumption and capital, in real term, are set to expand by 8.3 and 8.0 percent respectively.
(4) Economic stability is challenged with higher risk, which is associated with unemployment rise. However, in overall, economic stability remains manageable.
(4.1) Inflation rate is likely to decline to (-0.5) — (0.5) percent, lower than 5.5 percent in year 2008, attributable largely by falling oil and commodity prices and weak final demand.
(4.2) Unemployment rate will inevitably rise and could reach 2.5-3.5 percentof labour force, or equivalent to 900,000—1,300,000 persons of the projected labour force of 36.942 million people. NESDB expects the hardest hit sector, export and tourism, to shed a sheer number of jobs this year. In fact, the increase in number of unemployment insurance by 38.3 percent in 2008 as compared to the previous year signals the risk. In January 2009, the number of unemployment insurance rose by 66,676 people, add to the existing number of 387,629 people in 2008. This reflects a clear upward trend of unemployment rate in 2009. Furthermore, the contraction of production and business environment will lead to the lost of new job opportunities. This is indicated by the increase of new registered applications by 88.5 percent but job vacancy rate dropped by 3.4 percent. As a result, job vacancy to applicants’ ratio at the end of December 2008 was 0.55 times, reduced from 0.79 and 0.71 times at the end of June and September 2008 respectively.
(5) Production side: Overall production in 2009 tends to decelerate, comparing with 2008. Production side outlook is as follows:
(1) Agriculture Sector: Both production and price of agriculture products have tendency to decline, compared to 2008. As food importing countries has turned to produce agriculture product for fostering their food security system. Accompany with sharp decline in crude oil price. 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 this year. Overall 2009, agriculture sector’s risk factor are decrease in crop price, domestic economic downturn that lead to lower consumption rate, and both volume and price of export products expected to slow down. On the other hand, positive factor are low oil price, and stability of baht.The sector outlook is as follow:
(1.1) Rice: in 2009 production of rice in the first and second crops tends to decrease both in term of production area and total production, from high possibilities of drought. However, government lunched rice pawning scheme for crop year 2008/2009, which effective from 1 November 2008 to the end of April 2009. This scheme will help stabilize rice price and support paddy price.
(1.2) Rubber: Production is expected to slow down from 2008, as demand in world market and main counterpart had decline, namely America, China, and Japan. This drop in demand is inline with consumption and investment pattern, especially in demand for auto mobile. In 2009 average rubber price tends to decrease from its high level of 2008 due to sharp drop in oil price and base price adjustment.
(1.3) Cassava: Total production in 2009 is expected to expand 15.9 percent, as farmers have expanded their harvesting areas from price incentive last year. However, since 70 percent of cassava production of Thailand depends on export market, the contraction of demand in the global market is expected. With respect to domestic market, demand for cassava market 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 cassava as income from ethanol production can cover its cost. The price of cassava in 2009 is expected to be at 1.70 baht per kilogram, which is lower than average price of last year, inline with global crude oil trend.
(1.4) Livestock: The production in 2009 will remain stable; partially from slow down in global food demand in turn will reduce overall Thais’ export of livestock. Nevertheless, processing food exporter need to pay more attention towards product quality and improvement in production efficiency. In the same time, government should introduce cost saving measures by located cheaper source of animal nutrition, cheap animal vaccine, finding new export market with high purchasing power, especially in neighboring countries and Middle East.
(1.5) Fishery: The production is expected to slow down from the effect of Thai-China and Asean Free Trade Area, which resulted in massive flow of low cost fishery products into domestic market. Shrimp production will remain stable from last year as uncertainty in market situation and price had increase. Overall 2009, risk factor in fishery export are 1) global economic down turn which decelerate purchasing power, and 2) antitrade policy, especially anti-dumping, by counterpart.
(2) Industrial sector: domestic economy, and 3) high base effect from same period of last year. Industrial production has tendency to improve in the later half follow government expense and mid-year stimulus package. Furthermore, monetary policy and direct injection measures adopt by many countries is expected to provide some relief for Thais export market.
Economy of major export counterpart like US, Japan, and EU are expected to contract by 1.6, 2.6 and 2.0 percent respectively. Such contraction will adversely impact export oriented industries especially textile, electronic appliances and electronic parts, gems and jewelry, rubber and rubber products and furniture. In contrast, food and Beverages have tendency to increase. Furthermore, petrochemical industry would have a win fall from sharp decline in global oil price. In 2009, producers are expected to quickly adjust themselves toward changes in world production structure with new rival such as China, India and Vietnam that have advantage on production cost.
Positive factors contribute to expansion of industrial sector are as follows: 1) further decline in Oil price, subsequently reduce cost of production, 2) lessen inflationary pressure from global oil price situation, which increase consumers’ purchasing power, 3) government stimulus package and accelerated budget disbursement will help stabilize economic activities especially in the last half, and 4) acceleration in mega project investment would benefit construction and others related industries.
Negative factors contribute to expansion of industrial sector are as follows: 1) Global economic deceleration which directly effects productions and employment level of Thai’s export oriented industry, like automobile and electrical parts, and 2) increase in unemployment rate will alternately reduce domestic purchasing power.
(3) Construction and Real estate sector: in 2009 is expected to slow down from 2008 due to continuous uncertainty in both domestic and global economy. Positive factors in this sector have prompt like reduction in cost of material, decline in oil price, interest rate cut by commercial bank to stimulate purchasing power, and expansion of tax threshold for home buyer from 100,000 baht to 400,000 baht per annum. Nevertheless, supply of new house in 2008 still remained which are the burden of developers. Main obstacles for both developers and home buyers are tougher credit approval by commercial bank, this will dramatically effect small and medium entrepreneurs, and low purchasing power of consumer. In 2009 price is expected to decrease follow decline in raw materials and commercial bank interest rate. In Addition, decrease in price would help promote sale during low demand period.
(4) Tourism sector: The government has been undertaking more aggressive marketing promotion to stimulate market and restore Thailand’s reputation. Nevertheless, Ministry of tourism and sports had set a target over the number of foreign tourists at 14.0 million persons, which is 3.7 percent lower than last year, from 14.53 million persons in 2008 with forecasted revenue of 505,000 million baht. For 2009, the target of Thai tourist is 87.06 million persons which will generate income of approximately 407,600 million baht. To achieve such objectives, strong cooperation between government and private sector is vital. In addition, Thai’s government needs to put forth budgeting support to 1) support marketing and promotion scheme 2) restoring Thai image 3) create incentive for both Thai and foreign tourist like corporate tax deduction for domestic meeting, lowering air fare during the first quarter, visa fees exemption and encouraging government officials to held seminar in provincial area.
Tourism sector was severely impacted in later half of 2008 and drag into the first quarter of 2009 which was in high season. The impact will translate toward small tourism businesses which adversely cause them to close down or reducing their cost of doing business such as executives’ salary cut and decreased number of tourist guides hire. In turn deepen overall unemployment situation. However, tourism sector is expected to perform better in second half with two main contribution factors including: 1) more stable domestic political situation will restore confidence of foreign tourist as reflected in cancellation of warning notice from many countries, 2) Government and private sectors have announced policies and measures in order to support tourism sector which include “Visit Amazing Thailand 2009” program, Road Show to potential customers especially to rising star countries such as Russia, Middle East and Spain. At the same time, keep existing particularly West Europe and major countries in Asia such as Japan, Singapore, Korea and Hong Kong.