2.3 Thai Economic Outlook in 2010
Thai economy is likely to grow at a faster pace than previously expected, providing that the in improvement in economic condition and a strong momentum from economic recovery in the latter half of 2009 continue. The recovery in 2010 will be supported by export and manufacturing production expansion, and the regain of domestic private demand. Indeed, economic recovery tends to be centered upon particular sectors during the first phase of economic recovery. The momentum of recovery in the second half is, however, subjected to the continuation of global economic recovery. Meanwhile, the pressure on Thai baht appreciation and inflation are on the upward trend. In this respect, economic management in the remaining of the year should focus primarily on policy implementation to: (i) assure continue economic recovery; (ii) to maintain economic stability; (iii) to encourage a broad base recovery and; (iv) to mitigate the negative impacts from global economic and financial fluctuation.
- Thai economy tends to grow at a faster pace than previously expected, providing that improving in global economic condition and the momentum of economic recovery in the latter half of 2009 continue. The global economic recovery is likely to drive manufacturing production and exports to grow at a faster pace than previously expected with the contribution from inventory restockin that is likely to continue in the first half of 2010. Meanwhile, the expansion of tourism sector would be supported by the strong expansion of number of tourists from Asian countries. The improvement of manufacturing production and tourism sector is seen to be key factors that support household income and domestic demand in 2010.
- The recovery in 2010 will be supported by export and production expansion, and the regain of domestic private demand. Export and manufacturing production sectors are forecasted to play an important role in extending Thailand’s economic growth in 2010. In addition, domestic demand is expected to be on the path of recovery, providing (i) the momentum from economic recovery in the latter half of 2009, particularly the regains of the employment, household income and consumer and business confidences; (ii) the increase of agricultural prices at a faster pace than previously expected; (iii) the rises in capacity utilizations in many industries to higher than 75 percent — the rate that brings about the new investment to the manufacturing sector — under the circumstances that greater capital inflows are shifting to Asian region and the currency appreciation that will reduce the cost of capital goods; (iv) financial liquidity still in its supportive position to accommodate domestic demand expansion. Nevertheless, growth contribution from government demand tends to be limited by the reduction of regular government budget in FY2010 and the delay of budget disbursement from the second economic stimulus package (SP2).
- The economic recovery tends to be centered upon particular sectors during the first phase of economic recovery. More specifically, the benefits from world economic recovery, the revival of the Thai economy will concentrate on a few specific manufacturing sectors — electronic products, vehicles and equipments, and electrical appliance — as these sectors will directly benefit from inventory liquidation cycle in major countries. Meanwhile, the agricultural sector still lags behind as production takes time to response to the price increase. Nonetheless, in the second half of the year, the continuation of world economic recovery that coupled with the transition from public demand to private demands in major economies should encourage a broader base production recovery.
- The momentum of recovery in the second half is, however, subjected to the continuation of global economic recovery. Although the global financial system has improved gradually and facilitated global economy to recover at faster pace than previously expected, private demand in major economies remained weak while global financial fluctuation tends to escalate from that of at the end of 2009. Therefore the momentum of global economic expansion tends to decelerate in the latter half, due to (i) the contribution from inventory liquidation cycle in major countries fade out; (ii) stimulation effects of temporary stimulation measures in major countries decline; (iii) monetary policy tightening tend to slow down the pace of global economic recovery; and (iv) the fragile financial system in the countries with weak economic fundamental. These unfavorable conditions pose downside risk to Thailand economic recovery in the latter half of 2010.
- Pressure on inflation and currency appreciation are heightened. Inflation trends upward due to the increase of oil and other commodity prices in the world market, and the expiration of “6 months 5 measures” stimulus package in March 2010. Thai bath value tends to appreciate against the US dollar in line with other regional currencies. In addition, domestic market interest rate trends upward in line with the world market rate of interest, the increase of supply of government bond and rising private financial demand to facilitate business activities. These developments could jeopardize the momentum of economic recovery and require close monitoring.
- Supporting factors
- Improving global economic condition will support the expansion of manufacturing production, exports, and the tourism activities as well as strengthen income base and consumption of households in manufacturing and service sectors. Although economic revival tends to be centered upon particular sectors during the first phase of economic recovery, the continuation of global recovery that coupled with the transition from public demand to private demand growth in major economies should encourage a broader base domestic production and income recovery in the latter half of 2010. In addition, the increase of agricultural prices in spite of global demand recovery will eventually contribute to incomes and consumption demand expansion of households in agricultural sector.
- Growth momentum generated by continued economic recovery in the latter half of 2009 will provide impetus for economic recovery well into 2010. The key impetuses for economic expansion in 2010 are including (i) the improvement of incomes and employment condition; (ii) the continued recovery of consumer and business confidences; (iii) the fast increase of capacity utilization rate that was driven specifically by the faster-than-expected production expansion in the 4th quarter of 2009.
- The implementation of investment projects under the second government stimulus package (SP2) will help offset the reduction of regular government budget and facilitate economic recovery.
Risk factors
- Momentum of global economic recovery remains weak and likely to slowdown in the second half of 2010.
- Domestic political instability: Though Thailand’s economic condition has improved significantly in the latter half of 2009; its momentum is conditioned upon the improvement of consumers’ and investors’ confidences as well as the continuation of government policy implementation. Therefore, the domestic political demonstration and political instability could affect consumer and business sentiments, and develop further to impede the process of economic recovery.
- The environmental problem in Map Ta Phut Industrial Estate continue to impede private investment recovery in 2009. Although, the pickup of capacity utilization rate and Thai baht apprecia t i on are like ly to induce new investment , the lack of a clear solution for investment problem will render investor confidence and impede investment recovery.
- The disbursement of investment budget under the second stimulus package (SP2) is likely to delay. Given, that the regular budget in FY 2012 is less than that of in FY 2009, the delay of SP2 budget disbursement will definitely limit growth contribution from public sector.
- Oil price increase in spite of global demand recovery: Base on the fundamental factors, the average oil price in 2010 is expected to be 75-85 US dollars per barrel. The speculation demand and exchange rate fluctuations in the world market, however, may cause oil price to increase at a faster pace than real economic recovery. These factors combined with the increase of agricultural prices and the expiration of “6 months 5 measures” stimulus package in March 2010 would raise inflationary pressures, costs of production, and the living expenses.
- Thai baht appreciation, fixed exchange system, exchange market intervention in major exporting countries, and currency devaluation in crisis countries could render competitiveness of export sector and the earning of exportdependent businesses that have high domestic cost of production.
- Domestic interest increase, providing the increase of interest rates in global market, the increase in supply of government bonds, and the increase of private capital demand in spite of economic recovery. This would be a barrier for the private-investment recovery which has been delayed by the environmental problem in Map Ta Phut Industrial Estate.
- The drought in 2010: Even though the agricultural prices started to pick up significantly in the latter half of 2009, the expansion of agricultural production in 2010 is subjected to the severity of drought that could seriously affect agricultural output and prices.
2.3.1 Key assumptions for 2010 projection
(1) The world economy and global trade volume in 2010 are expected to grow by 3.8 — 4.2 percent and 5.8 percent respectively. This assumption is revised upward from 2.8 - 3.2 percent of global economic growth and 2.5 percent expansion of world trade volume in the previous projection assumption on 23rd November 2009, in line with the revision of global economic outlook by international agencies.
(2) Average Dubai crude oil price in 2010 is expected to be in the range of 75 -85 US dollars per barrel, higher than an average of 61.60 US dollars per barrel in 2009, reflecting growing oil demand in spite of global economic recovery.
(3) Average export and import prices increase by 6.5 percent and 6.0 percent respectively, reflecting the increase of oil and commodity price in the world market. This assumption of export and import price is an upward revision from the assumption of 3.5 and 4.5 percent employed in previous projection
(4) Tourism number in 2009 is expected to be at 16 million persons, 13.5 percent increase from that of in 2009, an upward revision from 15.0 million persons in previous projection. The upward revision reflects the strong expansion of the number of tourists from Asian countries in the latter half of 2009 which is likely to continue in 2010.
2.3.2 2010Economic Projection
Thai economy is expected to grow in the range of 3.5 - 4.5 percent with 3.0 - 4.0 percent headline inflation and a current account surplus of 5.6 percent to GDP
In the press release on the 23rd of November 2009, Office of the National Economic and Social Development Board (NESDB) projected 3.0 - 4.0 percent real GDP growth with 2.5 - 3.5 percent inflation and a current account surplus of 5.3 percent to GDP.
In this press release on the 22nd February 2009, NESDB revises the range of growth projection to 3.5 - 4.5 percent, as the probability of the Thai economy to grow in the range of 3.5 - 4.0 percent is much greater than that of 3.0 - 3.5 percent. The headline inflation is projected to be in the range of 3.0 - 4.0 percent and current account is forecasted to register a surplus of 4.2 percent to GDP. The underlined reasons for this revision are as follows:
(1) The world economy is likely to grow at a faster pace than the growth assumption employed in previous projection. In this projection, the global economy is projected to grow by 3.8 — 4.2 percent compare to 2.8 — 3.2 percent in previous projection on 23rd November 2009. Therefore, the probability of the Thai economy to grow in the range of 3.0 — 3.5 percent declined as exports and production tend to pick up at a faster pace than in previous forecast. The stronger pace of export and production expansion are likely to stimulate private consumption, investment and importation of goods and services to expand at a faster pace than in previous projection on 23rd November 2009.
(2) In the second half of 2009, the Thai economy grew at a faster pace than previously expected and provided economic growth momentum for the year 2010, in particular (i) the improvement in employment condition that lowered unemployment rate to only 1.0 percent in November 2009 — the lowest rate since 2003; (ii) the rapid increase of capacity utilization led by world economic recovery and the inventory restocking in the latter half of 2009, particularly the rate of capacity utilization in electronic and vehicles production sectors picked up from 68.8 and 59.9 percent in Q3 to 72.0 and 72.2 percent in Q4, respectively; and (iii) the faster-than-expected recovery of number of tourists, led by the rapid Asian economic recovery, from 1.15 million persons in December 2008 to 1.63 million tourists in December 2009 the highest number of tourists since May 2008. These positive trends will provide economic momentum well into 2010.
(3) The budget disbursement and the implementation of investment projects under the framework of the second stimulus package (SP2), tends to delay. Given, the reduction of regular government budget in FY 2010, the delay in budget disbursement under the second stimulus package tends to reduce growth contribution from public sector.
2.3.3 The composition of 2010 economic growth
(1) Total consumption in 2010 is revised upward from 2.5 percent in previous projection to 2.8 percent in this projection as private consumption tends to grow at a faster pace than previously expected. Private consumption is projected to increase by 3.0 percent, compare to 2.7 percent in previous projection. The upward revision of private consumption is attributable to the improvement of incomes and hiring condition that is likely to be supported by the recovery of manufacturing production, export, tourism activities, and agricultural price increase. Meanwhile, government consumption is projected to increase by 1.6 percent, unchanged from the projection on the 23th of November 2009.
(2) Total investment is forecasted to grow by 4.6 percent, compared to a contraction of 9.0 percent in 2009, and 3.8 percent expansion in previous projection. The downward revision of total investment is attributable to the downward revision of public investment from 6.0 percent in previous projection to 3.5 percent in this projection. This downward revision reflected the likely delay of budget disbursement under the second stimulus package (SP2).In contrast, private investment is projected to expand by 5.0 from 3.0 percent in previous projection to reflect the sharp increase of capacity utilization rate in the fourth quarter of 2009 .
(3) Export value of goods and services in US dollar terms is expected to increase by 15.5 percent, compared to a reduction of 13.9 percent in 2009, which is an upward revision from 10.0 percent expansion in previous projection. Export volume of goods is projected to increase by 9.0 percent, compare to a contraction of 14.2 percent in 2009 and 6.5 percent expansion in previous projection. The upward revision of export value of goods and services is attributable to the revision of projection assumption of (i) world economic growth rate from 2.8 -3.2 percent in previous projection to 3.8 — 4.2 percent in this projection; (ii) world trade volume from 2.5 percent to 5.8 percent; (ii) export price from the increase of 3.5 percent to 6.5 percent (iii) the number of tourists from 15 million to 16 million persons.
(4) Import value of goods and services in US dollar terms is forecasted to increase by 24.0 percent, compared to a contraction of 24.9 percent in 2009 and the expansion of 18.5 percent in previous projection. Import volume of goods in US dollar terms is projected to increase by 18.0 percent, compared to that of 14.0 percent in previous projection and a contraction of 23 percent in 2009.This revision is in accordance with (i) the upward revision of export, consumption and private investment that raise import demand accordingly; and (ii) the upward revision of projection assumption of import prices from an increase of 4.5 percent in previous projection to 6.0 percent in this projection.
(5) Trade balance is forecasted to register a surplus of 11.3 billion US dollars. Combined with a surplus in service account, current account is projected to register a surplus of 12.2 billion US dollars which is equivalent to 4.1 percent of GDP, compare to 5.3 percent of GDP in previous projection.
(6) Average headline inflation rate is forecasted at 3.0 — 4.0 percent, pick up from a negative inflation rate of (-0.9) percent in 2009 and compare to 2.5 — 3.5 percent in previous projection. This upward revision reflected the sharper-than -expected increase in agricultural prices and, import and export prices.