(3)Hotels and restaurants contracted by 5.5 percent due mainly to the reduction in number of foreign tourists, but the degree of contraction was lessened compare to that of 7.7 percent in the previous quarter. Transportation and communication sector remained subdued in the first quarter led by the reduction in international transportation of exported and imported products. The decline in transportation related to surface shipping as well, so the weakness of this sector in the first quarter was no longer the consequence of political turbulence. All in all transportation and communication sector output fell by 6.5 percent, showing sign of slight improvement as compared to the 10.6 percent decline in the previous quarter when the airport was shut down for a brief period
Economic stability remained favorable but there is growing concern over the increasing unemployment.
(1) Domestic economic stability remained in check but unemployment situation needs to be monitored closely.
- Average inflation rate was at -0.3 percent in the first quarter, down notably from positive 2.1
percent inflation in the last quarter of 2008. In April, inflation rate declined to -0.9 percent and
resulted in an average inflation rate of -0.4 percent in the first four month of 2009.
However, foods prices continued to increase significantly for all items. In the first quarter, foods & beverages price(A) index picked up by 10.0 percent. Meanwhile nonfood price index declined by 6.9 percent due to the extension of “5 months 6 measures” under the stimulus package to help reduce cost of living for low income earners. On the downside, domestic retails petroleum prices also declined continually in line with declining crude price in the world market. The fall in oil prices together with the impacts of the measures to reduce utility bills has resulted in the decline of price index of transportation, energy, electricity and water supply.
- Average unemployment rate stood at 2.1 percent, picked up from an average rate of 1.4 percent
in 2008, reflecting the increase in layoffs driven by production cut down and investment contraction.
the total consumption expenditure.
- Public debt to GDP ratio rose to 39.9 percent, as of February 2009, up slightly from 38.1 percent at the end of last year. The downside was the shortfall of government’s revenue collection by 13.5 percent below the planned target. The revenue collection also decline notably by 6.5 percent from the same period of last year owing to the downturn of economic activities.
(2) External stability remained favorable: current account registered a large surplus while
international reserves stood at high level
- The current account surplus soared to high level of 9,112 million USD, which is equivalent to 32,580 million baht. Of this large surplus are trade account surplus of 7,800 million USD and service account surplus of 1,312 million USD. The upturn in the service account surplus was due primarily to the
substantial lower outbound tourism expenditures amid economic contraction while the inbound tourism receipts increased during high season. Moreover, the rise in trade account was an outcome of sharp
declines in imports, driven by lower energy and raw material imports, an as well as capital goods imports.
- At the end of April, foreign reserves stood at 116.83 billion USD (with the net forward position of 3.58 billion USD) which is equivalent to 4.9 times short-term debt and 12.6 months of imports.
- Exchange rate was averaged at 35.31 baht per USD, depreciated by 1.54 percent from the last quarter of 2008 and 8.09 percent from the same period of last year. The movement of baht currency was in line with that of other regional currencies. In part, the depreciation was explained by the net capital
outflows of 2,953.65 million USD in the first quarter of 2009, driven by demand for foreign assets holding
by banking sector and debt payment by private sector.
Key themes of the Thai Economic Outlook for the remaining of 2009:
The economy should bottom out in Q2 as the latest. The real output is expected to begin growing again in H2/2009 but full recovery to trend growth is unlikely before late 2010. The full-fledged recovery is not expected before 2010 because of the weak global backdrop and depressed sentiment. Moreover, the stimulus package phase 2, which focuses on medium term investment, will likely to kick in more concretely in 2010. That said the U-shaped recovery is characterized as the recovery path for the Thai economy.
(1) The sharp contraction of the Thai economy in the first quarter is likely to be followed by a
continued decline in the second quarter, given that the global economy will continue to be in recession. However, H2/2009 will likely to see an upturn of economic activities on the back of more favorable conditions both global economy and progress and effectiveness of government stimulus packages. Despite the
expected recovery, NESDB considers that H2/2009 is too early for a strong domestic-led recovery, and a
long bottoming out process is expected given that the global economy will still be a stabilizing process
in Q2/2009-Q3/2009 after the worst synchronized collapse in demand in H1/2009. That implies a yet fragile recovery of the world economy. As a whole, the Thai economy is likely to register a contraction of (-3.5) - (-2.5) percent, a downward revision from (-1) — (0) percent growth in the previous forecast released in February, 2009. The downward revision is due mainly to worsened-than-expected global economic conditions that caused exports to drop severely and dragged along private consumption and investment. On the investment front, rapid rise in excess capacity will discourage new investment expansion to the greater extent than earlier predicted. Overly cautious lending behaviors and tightening of credit standard by financial institutions will also delay a recovery in private investment. Therefore, private investments are expected to contract continuously throughout the year, especially in industrial, construction, retail and transportation sectors. Key highlights of economic issues in the remaining 2009 are as follows:
(1.1) The Thai economy will continue to contract in the second quarter, but to a lesser extent that experienced in the first quarter due mainly to lingering global economic recession. Meanwhile, the implementation of stimulus packages will still be in an early stage so that their effectiveness will
be limited. On the positive note, however, the contraction in the second quarter is likely to be less severe than that in the first quarter, provided that stimulus packages will prevent private consumption to fall further and, to some extent, will stimulateprivate consumption expenditures in Q2 when the cash handout and other subsidy grant are fully delivered. The expected more moderate contraction in Q2 is judging based on the following assumptions and assessments:
(i) The fiscal stimulus enacted earlier this year implementation of stimulation measure will support and prevent private consumption from contraction further as well as the expedition of budget disbursement to meet the targets.
(ii) With the recent signs of world economic stabilizing, the worst collapse in world
demand is expected to be behind.
(iii) Given the moderate growth rate in the second quarter of 2008, the less sever
contraction in the second quarter will be in part a result of technical low base effect.
(1.2) However, it is expected that real output of the Thai economy will begin growing in H2/2009,
but full recovery to trend growth is unlikely before late 2010. The positive growth is possible especially in terms of sequential growth, i.e., quarter on quarter growth basis. The recovery will be supported by following factors: (i) global economic recovery (ii) the disbursement of supplementary budget of 116.7
billion baht and implementation of government stimulus measures; (iii) the implementation of public projects under medium and long term investment plan; and (iv) an accommodative monetary policy, liquidity management and soft-loans extension and guarantee provided to SMEs.
(1.3) In the context of significant excess capacity, the growth turnaround in H2/2009 will be
driven primarily by the domestic and global inventory cycle together with domestic and global stimulus measures. The faster pace contraction of import and production than that of consumption and export indicated the rundown of inventory. The massive rundown of inventory of 156,209 million baht in the first quarter indicated that it is necessary for business sectors to increase capacity utilization to rebuild inventory to a strategic level. However, it is not expected that the H2/2009 recovery will stimulate corporate confidence robustly for investment in new capacity. Despite the stock building in H2, all in all
the change in inventories will be negative contribution to economic growth in 2009 as apposed to its large positive contribution to growth in 2008. On the contrary, net export is likely to contribute positively to real GDP growth thanks to faster contraction in imports than that in exports.
(1.4) Nevertheless, the strong recovery in production and investment in Thailand will be crucially conditional upon the growth momentum of global economy. Unless the world economy recovers to its full potential, the Thai economy will be on a sub-potential growth path for a prolonged period. In most countries strong policy responses should combine with selfequilibrating mechanisms of economies to avert a depression and create positive externalities to the world. That said the main downside risks for the Thai economic outlook are global growth, effectiveness and efficiency of policy implementation, public confidence, and political stability. In turn, the main downside risk for the world economy is that
financial distress worsens again, triggering more negative feedback with real economy and vice versa, meaning that adverse negative feedback loop remains a concern over the world economic outlook in the months to come.
(1.5) Inflation in Thailand is set to keep falling throughout H1/2009 but NESDB sees a limited
risk of deflation. The subsiding inflation from a historical level in 2008 will be driven by low oil and
commodities prices along with soft demand. This is in line with global inflation prospect where unprecedented slack in the global economy will likely restrain inflation pressures throughout 2009-2010.
(Continue to).../Economic performance..