- The Thai economy in first quarter of 2010 grew by 12.0 percent, a higher-than-expected expansion from 5.9 percent in the previous quarter. Household consumption, private investment and exports continued to improve, supported by global economic recovery. Regarding the domestic factors, farm income rose due to higher prices of major agriculture products while tourism sector remarkably expanded with the total number of tourists hitting its record high.
- After seasonal adjustment, the economy continued to grow from the previous quarter by 3.8 percent. This fourth quarter of consecutive expansion clearly indicates a strong recovery of the Thai economy, denoted by a growth in manufacturing sector, higher capacity utilization and a lower unemployment rate.
- The economic forecast for 2010 remains in a range of 3.5-4.5 percent due to high uncertainties. Despite an outstanding growth of 12.0 percent in the first quarter, the economy remains under certain risks, including (i) Debt crisis in European Union could endanger global economic recovery, (ii) Political instability can inevitably lead to lower number of inbound tourists, while posing difficulties to the government administrative process and causing a delay in both budget disbursement of Stimulus Package 2 (SP2) or Thai Kem Khang 2012 and fiscal budget 2011, (iii) Private consumption and investment are expected to slow down while long-term capital outflow tends to surge following a worsen confidence of all domestic parties, and (iv) Severe drought is expected to disrupt agricultural production, subsequently lead to a lower farm income. Hence, several economic indicators are forecasted as follows: (i) Headline inflation between 3.0-4.0 percent, (ii) Unemployment rate at 1.3 percent, and (iii) Current account surplus of 4.1 percent of GDP.
- In order to enhance economic expansion in 2010, economic management should emphasize the following issues: (i) Restore confidence of foreign tourists and investors and improve the country image, (ii) Mitigate the impact of drought as well as maintaining the stability of agricultural prices, (iii) Implementation of well-balanced monetary and exchange rate policy to maintain economic stability, (iv) Speed up key investment projects under SP2 in order to offset a reduction of government spending under regular budget (v) Monitor and evaluate the impact of debt crisis in European countries as well as preparing counter measures for the possible impacts such as the volatility in capital flow and the decelerated production and export.
Thai Economic Performance in Q1/2010 and outlook for 2010
In the first quarter of 2010, Thai economy considerably expanded by 12.0 percent compared to the same period of last year, supported by global economic recovery as well as better investor confidence. Exports, tourism, private investment and consumption collectively improved. Manufacturing productions for both domesticconsumption and exports accelerated from the previous quarter. The seasonally adjusted GDP grew by 3.8 percent compared to the previous quarter, and gradually expanded for four consecutive quarters (from 2.4 percent, 1.4 percent and 4.0 percent in the second, third and fourth quarter of 2009 respectively). This clearly indicates a strong recovery of Thai economy.
Positive signs in Q1/2010
(1) Export values in term of US dollar rose by 32.0 percent, considerably up from a 12.2 percent growth in the previous quarter. The key drivers included a 73.4 percent growth in vehicles, parts and accessories, a 53.0 percent growth in computer and accessories, a 35.5 percent growth in electrical appliances and a 59.5 percent growth in electronic integrated circuits.
(2) Household consumption surged by 4.0 percent owing to an improvement in purchasing power as a result of rising employment in various industries. Furthermore, a growth of 16.9 percent in crop prices led to an increase of 19.3 percent in farm income. Consumer confidence also rose, reflected by an improvement in consumer confidence index from 69.2 in the previous quarter to 70.9.
(3) Private investment remarkably grew by 15.8 percent, indicating an improvement in investor confidence towards economic prospect. In addition, the housing developer sentiment index (HDSI) rose from 57.8 in the previous quarter to 59.0. This was attributed by the benefit from the real estate stimulus package.
(4) Manufacturing production expanded by 22.8 percent especially the export-oriented industries such as electronic products, electrical appliances and automobile industries which recorded a growth rate of 60.7, 52.2 and 86.6 percent respectively. Besides, the domesticoriented industries including construction materials, iron and steel products and rubber and rubber products, continued to grow. The capacity utilization stood at 68.4 percent, up from 61.0 percent in 2009 and 67.6 percent in 2008.
(5) Tourism sector: the total number of foreign tourists in this quarter recorded a historical high of 4.7 million persons, or expanded by 28.4 percent compared to the same period of last year. Most of the tourists came from China, Taiwan, South Korea and Japan. The occupancy rate also improved from 53.4 percent in the first quarter of last year to 60.7 percent in this quarter. Hotels and restaurants, as a result, experienced an expansion of 15.5 percent.
Thai Economic Outlook for 2010
A remarkable expansion in the first quarter presumably indicates two significant implications. First of all, the economy has completely bottomed out. Secondly, there is a strong likelihood of a high annual growth rate with a widespread expansion in its key drivers including export, tourism, private investment and private consumption while government spending under the SP2 also plays an important role in supporting the economic growth. However, several risks including uncertainty in global economic recovery as well as domestic political situation may cause the economy to grow at a lower-than-expected rate. Therefore, economic projection for 2010 remains unchanged from the previous forecast, published on 22nd of February 2010. In addition, the economy is expected to expand in a range of 3.5-4.5 percent, with 3.0-4.0 percent of headline inflation. Export value in US dollar term is expected to grow by 15.5 percent with a current account surplus of 4.1 percent of GDP, down from a surplus of 7.7 percent of GDP in 2009.
1. Economic Performance in Q1/2010
Expenditure Side
Household consumption expenditure: continued to expand from the previous quarter with a growth rate of 4.0 percent, compared to a contraction of 1.1 percent in 2009. Key supporting factors to the improvement were: (i) an increase in employment especially in the hotels and restaurants sector, (ii) increase in farm income following an improvement in prices of agricultural products, resulted by an increase in global demand in accordance with recent economic recovery, and (iii) an improvement of consumer confidence following the implementation of SP2. During the first quarter, such expansion of household consumption expenditure was contributed by a collective growth in durable goods, semi-durable goods and non-durable goods by 29.8, 11.2, and 1.4percent consecutively. Under the non-durable goods category, food and non-food consumption rose by 1.2 and 1.5 percent consecutively. On the contrary, household consumption in service sector declined by 4.1 percent. In addition, consumer confident index on economic situation over the first three months of 2010 continually declined from 71.9 in January to 70.9 in February and 69.8 in March respectively . Such reduction was influenced by concerns on political situation with a rising tension since the middle of March.
"...Household consumption expenditure expanded further from the previous quarter. Consumers gained more confidence and increased their expenditure particularly on durable..."
Private Investment: expanded by 15.8 percent, the first expansion since the last quarter of 2008. The expansion was attributed to an increase in both equipment and construction by 17.7 and 9.7 percent respectively. This was owing to the improvement of economic condition and investors’ confidence as well as the increase in capacity utilization. Private investment index expanded by 18.2 percent compared to a contraction of 1.7 percent in the last quarter of 2009 In addition, import of capital goods expanded by 23.8 percent, the first expansion after a four consecutive quarters of contraction. The construction investment continuously rose for two consecutive quarters especially in Bangkok metropolis area where the construction areas permitted increased by 46.9 percent. The expansion of construction area was for all purposes including residential, commercial and industrial area.
Business sentiment index continued picking up to 55.7 in March, which was the highest level in its history led by significant improvement in performance, orders and production categories during the first quarter. Nevertheless, the 3-month expected business sentiment index dropped to 53.5 in March from 57.3 in February due to the concern over the domestic political unrest of which the intensification started in mid-March.
"...Private Investment expanded for the first time since the last quarter of 2008 both in equipment and construction. ..."
"...The export of agricultural commodities, industrial products and food products (exclude sugar) were all expanded led by the improvement in major markets such as ASEAN China and US. while other markets also expanded favorably. ..."
Export: both value and volume increased. In the first quarter of 2010, export value in US dollars term picked up by 32.0 percent after the contraction of 13.9 percent in 2009. The export volume and price also increased by 17.7 and 12.1 percent respectively. This improvement was supported by a recovery of foreign demand as the global economic condition improved. Moreover, it was a result from the implementation of (ASEAN Free Trade Area: AFTA) as well as a low base effect. In term of Thai Baht, during the first quarter of 2010, the export value rose by 2 2 .7 percent and the export price increased by 4 .2 percent as the Thai Baht appreciated.
The export of agricultural commodities increased both in terms of volume and price with 6.1 and 51.0 percent growth respectively, leading to a considerable increase of export value of 60.2 percent. Similarly, both volume and value of manufacturing products continued to expand by 20.2 and 29.3 percent respectively while the export price increased by 7.6 percent. Major exported commodities were electronics and electric appliances of which export value increased by 52.7 and 40.8 percent respectively. This was attributed by the improvement of major trading partners’ economic condition as well as the implementation of AFTA and significant expansion of export to China. Export value of food products (excluding sugar) increased by 1 6 .2 percent. The food products that recorded an increase are frozen and processed shrimps (34.1 percent) and, canned, fresh, frozen and processed vegetables and fruits (18.7 percent). However, when classified by product group, high-technology products and resource-based products increased by 48.4 and 33.2 percent consecutively. Whereas, export of labor-intensive products experienced a drop in value of 40.8 percent due to a decline in the value of unwrought gold (In 2009, the export of unwrought gold was accounted for 34 percent of labor-intensive export products).
Export market expanded in both major markets and other markets particularly in ASEAN (9 ) an increase of 6 7 .3 percent in export value, whereas other markets including those in China, US, Japan and EU(15) experienced an increase in export value of 69.9, 22.8, 29.4 and 2 1 .7 percent consecutively. Regarding new markets, the value of export to South Korea, Taiwan and India have increased favorably by 42.8, 69.6 and 92.4 percent respectively.
Imports: value, volume and price expanded considerably. In the first quarter of 2 0 1 0 , import value in US dollar term rose by 6 3 .6 percent expanding further from the previous quarter which increased by 1.4 percent. The import price rose by 11.0 percent mainly due to the rising in oil price. The import volume expanded by 47.4 compared to the contraction of 4 .8 1 percent in the previous quarter. A sign of domestic and global economic recovery stimulated production in response to the increase in import orders and economic activities. In addition, the considerable increase of import volume in this quarter was partly due to a low base effect.
"...Import significantly increased which expanded in all commodities particularly in semi-finish goods, raw materials and consumer goods. Besides, import price of fuel and lubricant had accelerated due to the rising of crude oil price. ..."
By economic classification, import increased in all classifications, for example, (i) Import of capital goods rose by 23.1 percent compared to the contraction of 3.9 percent in the previous quarter. This was due to the improvement in domestic investment and capacity utilization. (ii) Import of semi-finished goods and raw materials continually expanded by 70.4 percent from the expansion of 2 .9 5 percent in the previous quarter. The expansion in export and the improvement in domestic economy enhanced more demand on raw material. (iii) Import of consumer goods rose by 32.8 percent, compared to the expansion of 12.7 percent in the previous quarter, as consumer gained more confidence on economic recovery. Import volume and price of consumer goods increased by 29.3 and 2.7 percent respectively. (iv) Import of fuel and lubricant: import price increased whereas import volume decreased at a deceleration rate. Import value increased by 41.7 percent compared to the contraction of 2.5 percent in the previous quarter, while import volume rose by 0 .2 percent. The import price rose by 4 1 .5 percent, The improvement of the import value was owing to a considerable increase in crude oil price, together with economic recovery affecting more demand on fuel and lubricant.
"...Term of trade improved which expanded by 1.0 percent due to the pace of export price that was faster than that of import price. ..."
Term of trade improved from the same period of previous year as export price in US dollars term increased at a faster pace than import price. The price of export rose by 1 2 .1 percent, whereas import price increased by 11.0 percent. Hence, term of trade in first quarter of 2010 increased by 1.0 percent, which reflected a positive income effect of exporters.
Trade balance in the first quarter recorded a surplus of 2,133 million US dollars (equivalent to 69,834 million baht), lower than a surplus of 2 ,673 million US dollars (equivalent to 89,039 million baht) in the previous quarter.