2.3.4 Production side: Overall production in 2009 tends to contract, comparing with 2 0 0 8 . Production side outlook is as follows:
(1) Agriculture Sector: In 2009 agricultural production tends to decline from that of in 2008 due to (i) the contraction of the global economy that drags on demand for agricultural commodity (ii) the strong increase in agricultural price in 2008 induced importing countries to expand their production to foster food security system(iii)tougherprice competition with the rising bargaining power of importing countries that will lower agricultural prices in global market. The slower pace expansion of agricultural price and production will reduce the pace of farm income expansion in 2009 to lower than in 2008. However, government measures such as pledging scheme for agriculture products and measures to foster agricultural product development to market need. These measures will positively contribute to agricultural production. Outlook for major agricultural production is as follows:
- Rice: Rice production both in the first and second crops tends to decline both in terms of quantity and plantation areas as farmer increased rubber and cassava plantation area at the expense of rice plantation area. In addition, farmers in Northern and Central part of Thailand reduced their plantation outside irrigation area due to insufficient water for rice cultivation as well as the government does not encourage second crop cultivation. With respect to price, rice price in 2008 was high as exporting countries such as India and Vietnam cut their export quota due to the contraction in their production in contrast with the increase in demand from China. In 2009, rice price is expected to decline from its high in previous year. However, the price decline is unlikely to be a sharp fall as production in Vietnam declined and China faced with drought weather condition. Therefore import demand from China is expected to increase vis-a-vis the decline of rice supply from Vietnam. In addition, there is government scheme to support rice price.
-Rubber: In 2009, rubber production is likely to increase by 2 .0 percent. Both plantation area and crop yield are expected to increase and stimulate production expansion. This is because the government encouraged farmers to replace their old rubber trees with high yield rubber trees. With respect to price and market condition, in 2009 demand in global market and major trading partners such as the US, China and Japan are expected to decline amid tight credit condition and the contraction of consumption and investment. Domestic demand is likely to decrease from that of in 2008 due to the contraction of domestic rubber product and tire industry. Meanwhile, due to oil price reduction, an average rubber price is likely to decline from its unusually high in 2008 to be in the range of 50-60 baht per Kilogram.
- Cassava: In 2009 the harvesting area and production are likely to be higher than in 2009, due to incentive from high cassava price in 2008 that induced plantation area expansion. Export of cassava is likely to be in the range of 5.2-5.4 million tons. The decline in cassava price as well as the enforcement of countervailing measure in China on the export of cassava powder from EU will positively contribute to Thailand’ s cassava export. Domestic demand is also expected to rise due to the increase in demand from animal food and ethanol industry.
-Livestock: The production in 2009 will be relatively stable; partially due to the ebbing global economic condition. Therefore demand for foods tens to slow down which will eventually drag on Thailand’s export of livestock products. However, the exporter of processing foods should pay more attention on production standard and improve their production efficiency. Meantime, government should focus on cost saving measures by locating better source of animal nutrition, cheap animal vaccine, and finding new export markets, in particular in neighboring countries and Middle East.
- Fishery: Fishery production is expected to slow down due to the Thai-China and ASEAN Free Trade Area which resulted in a massive inflow of low cost fishery products. The export of shrimp products in 2009 is also expected to decline due to global economic downturn and the rising trend of trade policy. In addition, competition is likely to be tougher in major market such as the US, EU and Japan as market size getting smaller. Meanwhile, export to new market will also face with high competition. Therefore, domestic producers reduce shrimp production to avoid over supply condition and to maintain product price.
(2) Manufacturing sector: Manufacturing production in 2009 is likely to decline. In the first half of the year, manufacturing production contracted (from it high base in 2008) in tandem with the decline in export, consumption and investment. However, the situation is likely to improve in the latter half of the year, with the support of government stimulus measure. In addition, with the massive fiscal stimuli in various countries, the world economy is likely to recover which will positively contribute to manufacturing exports in the latter half of 2009. Production sectors that are expected to recover in the second half are including electric appliances and electronic production that orders started to rise especially hard disk drive production that stated to recruit workers and clothing production. Food production will benefit from Japan-Thailand Economic Partnership Agreement (JTEPA). Canned foods production is likely to benefit from a better global demand condition. Iron and steel production tends to slow down due to ebbing private investment demand. However, in the second half, iron and steel production tends to recover due to a better condition in importing countries, in particular orders in Q3 and Q4 started to increase, as well as the current low level of inventory that will stimulate production.
(3) Construction and real estate sector is projected to contract due to spillover from global economic recession that reduced purchasing power and confidences, and led to stricter credit standards. Stocks of new houses in the market are also burden on entrepreneurs to find some way to drain out. However, there are some support factors for this sector especially the decline in price of consumption materials, the reduction of interest rate, the extension of tax measure for economic stimulation and the expedition of mega projects. Meanwhile the stricter credit standard is among negative factors for this sector. With respect to price, in 2009, house price tends to decline due to lower cost of production both price of construction materials and interest rate. In addition housing development sentiment index show that the next 3 months expectation index increased from 40.2 in the fourth quarter of 2008 to 50.4. This indicates housing and real estate developers believe that the economic and political condition in the latter half will recover.
(4) Tourism: Tourism sector is expected to slow down in 2 0 0 9 due to global economic contraction and concerns over unfavorable political condition. Number of tourists in 2009 is forecasted at 13.6 million persons, a 4 .8 percent decline from 2 0 0 8 and lower that TAT’s target of 1 4 .0 million persons. However, the development of tourism sector over the first 4 months of 2009 indicate that the recovery in tourism sector recover at a faster pace than what was previously expected. Notably, the main conditions encouraging the target achievement are 1) vigorous cooperation between government and private sector 2) governmental budget supports to drive traveling marketing 3) improving Thai tourism image and providing mutual benefits for travelers such as exemption of visa fees and reduction of landing fees 4 ) launching policies enforcing government units to domestically organize seminars and meetings. Also, the shortage of liquidity issue is already relieved by minimizing taxes and fees for tourism entrepreneurs for this year. The master plans heavily stimulated the external and domestic tourism demand are implicated for example, value traveling encouragement to drive internal demands, by the slogan “Amazing Thailand: Amazing Value” and “Thailand: Super Deals and Find Thailand’s Best Deals”. It should be expected that security confidential reestablishment for foreigners, stability of domestic politics as well as many fabulous tourist locations in Thailand will still attract tourists to come to Thailand. All positive strengths might be the significant factors supporting the improvement of tourism sector on second half of the year.
2.3.5 Projection Conditions for High and Low cases
(1) The high case scenario: The Thai economy in 2009 is projected to contract by less than 2.5 percent under the following conditions (i) the improvement in global economic condition that emerged at the end of the first quarter and the beginning of the second quarter continue its trend and develop into stronger and broader recovery of major economies in the latter half of 2009 which will result in the global economic contraction of less than 1.5 percent. This global growth scenario will support Thai’s exports and production to start its recovery path at the end of second quarter (ii) the implementation of stimulus measures under the stimulus package in phase 1 both in terms of disbursement of supplementary budget and agricultural price stabilizing program successfully meet the targets such that it can sufficiently alleviate the spillover from production contraction on household incomes and prevent private consumption from contraction. Similarly, the implementation of tax measures meets its targets in order to alleviate trade spillovers on business and entrepreneurs (iii) the budget disbursement of at least 94 percent of planned budget for the government and at least 8 0 percent of the planned state-enterprise’s investment funds; and (iv) the yearly average Dubai crude oil price is not higher than 60 USD per barrel.
(2) The low case scenario: The Thai economy in 2009 is projected to contract by more than 3 .5 percent under following conditions (i) the recent signs of improvement in global economic condition discontinued and the process of global recovery are protracted. In this case, export and tourist number tends to decline at a faster pace than the forecast. (ii) budget disbursement rate fall bellow 94 percent (iii) the implementation of stimulus measures under the framework of SPI is unable to reach its targets and fail to prevent private consumption from further contraction and (iv) yearly average Dubai crude oil prices increase to higher than 60 USD per barrel.
3. Economic Management for 2009
There is a downside risk that the world economic recovery in the latter half could be sluggish and fragile with a sharper-thanexpected contraction which is already experienced in the first quarter of 2009. The second quarter will continue to see world economic that lingers before a picking up could prevail in the second half of the year given that the stimulus packages will kick in more fully and be more effective. The world recession has continued to dampen international trade since the latest of 2008, and its impacts aggravated in the first quarter of this year when the impacts were more broad-based. The impacts of the world economic recession and sharp contraction of the international trade has already driven the Thai economy into technical recession considering from two consecutive quarters of (quarter on quarter) negative growth.
Considering that the world economy will continue with deep recession in the second quarter of this year while the prospect of its recovery in the second half of the year remains fragile, it is, therefore, imperative for the Thai government to expedite the effective action of government measures in order to mitigate the adverse effects from global recession while stimulating the economy to grow more strongly into the longer term. Economic policy management guidelines for the second half of this are as follows:
(1) Accelerate budget disbursement in FY 2009 and the mid-term supplementary budget worth of 116,700 million baht. In parallel with such acceleration, preparation for budget allocation in FY 2010 should be prepared to be ready for front-loaded disbursement of the budget promptly in the first quarter of the FY2 0 1 0 and avoid the delay of budget execution. In this respect, project prioritization and details must be laid out as soon as the FY 2010 budget is passed the first reading by the parliament. The implementation of key public investment projects under the government budget, the state-owned enterprise budget, and under the framework of the second phase economic stimulus package must also be expedited concertedly.
(2) Accelerate, the implementation of measures to provide cushion for the laid off workers. The acceleration must be carried out in compliance with efficiency and effectiveness of the policy execution which includes the scheme for unemployment compensation / welfare and training for the unemployed to improve skills in order to create opportunities for new jobs.
(3) Monitor and improve prices guarantee scheme for major crops, other subsidy schemes established as a support mechanism for farmers, and the scheme of comprehensive development in agriculture sector to ensure their efficiency, effectiveness, transparency, and accountability of their implementations.
(4) Ease monetary conditions further and support private sector to have sufficient liquidity. Soft loan and credit guarantee for SMEs will also be provided by the specialized financial institutions. The monitoring and following up of the implementation of soft loan and credit guarantee for SMEs on loans should also be carried out.
Economic Projection of 2009
Actual Data Projection_2009f
2006 2007 2008 23 Feb.09 25 May 09
GDP (at current prices: Bil. Bht) 7,841.3 8,493.3 9,105.0 9,012.8 8,831.8
GDP per capita (Bht per year) 120,933.0 128,686 135,895 135,531 131,426
GDP (at current prices: Bil. USD) 206.9 245.8 273.4 251.8 248.8
GDP per capita (USD per year) 3,190.8 3,723.6 4,081 3,785.8 3,702.1
GDP Growth (at constant prices, %) 5.2 4.9 2.6 (-1)-(0) (-3.5)-(-2.5)
Investment (at constant prices, %) 3.9 1.3 1.1 -0.4 -6.2
Private (at constant prices, %) 4.1 0.6 3.2 -3.0 -9.7
Public (at constant prices, %) 3.3 3.4 -4.8 8.0 5.0
Consumption (at constant prices, %) 2.9 2.7 2.2 3.1 2.0
Private (at constant prices, %) 3.0 1.6 2.5 2.2 0.4
Public (at constant prices, %) 2.4 9.2 0.4 8.3 11.3
Export volume of goods & services (%) 9.1 7.1 5.4 -6.2 -9.8
Export value of goods (Bil. USD) 127.9 150.0 175.3 152.3 147.2
Growth rate (%) 17.0 17.3 16.8 -13.1 -15.0
Growth rate (Volume, %) 11.2 11.0 5.5 -6.5 -11.0
Import volume of goods & services (%) 3.3 3.4 7.5 -5.4 -9.9
Import value of goods (Bil. USD) 126.9 138.5 175.1 150.6 140.7
Growth rate (%) 7.9 9.1 26.4 -14.0 -19.6
Growth rate (Volume, %) 1.3 3.6 12.0 -7.0 -11.6
Trade balance (Bil. USD) 1.0 11.6 0.2 1.8 8.3
Current account balance (Bil. USD)/1 2.3 14.0 -0.2 2.3 9.3
Current account to GDP (%) 1.0 6.1 -0.1 0.9 3.7
Inflation (%)
CPI 4.7 2.3 5.5 (-0.5)-(0.5) (-0.5)-(0.5)
GDP Deflator 5.1 3.2 4.5 (-0.5)-(0.5) (-0.5)-(0.5)
Unemployment rate (%) 1.5 1.4 1.4 2.5-3.5 2.0-2.5Source: Office of National Economic and Social Development Board, 25 May 2009
Note: 1/ Reinvested earnings has been recorded as part of FDI in Financial account, and its contra entry recorded as income on equity in current account.
--National Economic and Social Development Board--