4. Thai Economic Outlook in 2010
Providing the strong economic expansion in the first quarter and the better-than-expected global economic condition, the Thai economy in 2010 has an opportunity to expand at a faster pace than previously expected. However, the deteriorating political condition prevented the tourism sector to gain a full benefit from improving global condition. Meanwhile, economic confidence tends to be weakened by recent political unrest. This will in turn impede the expansion of private consumption and investment. Given improving private demand condition in major countries, export grew strongly in the first quarter. Nevertheless, export performance in the remaining of 2010 remains subjected to downside risks that are facing the global economy. The Thai Baht is facing an appreciation pressure and tends to fluctuate due to volatile financial and economic condition in European countries. Lastly, the agricultural production faces the risk of drought and a fluctuation of the agricultural prices in the world market.
"...The Thai economic expansion was high in the first quarter, which show the opportunity of continued high economic expansion in 2010..."
The supporting factors
According to economic assessment in the first quarter, the Thai economy in 2010 has a favorable prospect for a high growth signaled by several supporting factors namely:
(1) The global economy and trade volume tend to expand at a faster pace than previously expected due to the robust economic expansion in Asia and the improving private demand condition in the U.S. and Japan. These favorable global economic conditions will support the adjustment process of inventory cycle in major countries and benefit to manufacturing production and export.
(2) Economic fundamentals remain favorable for the Thai economic recovery especially:
- The faster-than-expected economic recovery. In the first quarter, the Thai economy expanded by 12.0 percent, continuing from 5.9 percent in the last quarter of 2 00 9. This rapid recovery pulled the main economic activities back to their normal level in the year 2 0 0 8 , and provided economic momentum for the remaining of 2010. Especially, the rate of capacity utilization has increased to over 7 0 .0 percent in March and consumer and investor confidences has picked up significantly.
- The financial liquidity remains favorable. The stock and bonds markets are favorable for mobilizing private fund. Special Financial Institutions (SFIs) are also in good position to provide liquidity and support the recovery of SMEs. At the end of April 2010, the SFIs have approved credit of 286,794 million Baht, compared to the target of 821,175 million Baht for the year 2010.
- The real deposit interest rates are still in negative region and the real lending rates still at the bottom of interest rate cycle. That is, the real deposit rate in April was at -2.32 percent and the real lending rate (MLR) was at 2.86 percent. Although interest rate tends to increase in the remaining of 2010, the adjustment is expected to be gradual and remain accommodative for sometimes to support private investment and consumption expansion.
- World oil price is unlikely to rise significantly from its price in the first quarter. Although the strong Asian economic recovery and the growing private demand in the U.S. and Japan will eventually raise demand for oil consumption, the upward pressure on oil price will be partially reduced by the weakening economic activities in Europe. In addition, the concerns over debt crisis in European countries and the appreciation of U.S. dollar against major currencies will tone down the speculative demand and facilitate oil prices to move more closely to the fundamental factors.
"...However, there will be high risk streaming from both domestic and international factors which will decelerate the economy in the first quarter..."
Risk Factors and the Forecast 2010
Despite the strong growth in the first quarter, the development of global and domestic conditions after the first quarter posed downside risks to the Thai economic outlook in the remaining of the year that could severely curb the rate of economic expansion. These are including:
(1) The downside risks posed by global economic condition: With the contribution from growing private demand in the U.S. and Japan as well as the China-led Asian economic recovery, the world economy grew strongly in the first quarter. However, there are downside risks to global economy in the remaining of 2010, which included (i) the high unemployment, debt overhang in private balance sheet and twin deficit in the U.S. economy, (ii) the severe debt problem in Europe in which the Greece’s public debt has been accumulated to 405.7 billion U.S. dollars and the average debt of countries in Eurozone is as high as 78.7 percent of GDP and, (iii) the threat from inflation pressures in China that could lead to strong credit policy reaction and result in the sharp slowdown of Chinese economy.
(2) The downside risks posed by domestic condition: The recent political unrests affected severely the image of the country. This will be an obstacle for the country to gain a full benefit from the world economic recovery. The important impacts are as follows:
- The impact on the tourism sector and its related industries: The conflict between the protestors and officers during the 10th of April — 19th of May and the extremely violence by riots will leave some concerns over the safety of tourists in Thailand and reduce the number of foreign tourists especially those from Asia such as Chinese, Korean, and Japanese. Thus, it is expected that, in the year 2010, there will be approximately 13 millions of foreign tourists which is less than the target of 16 millions by 3 millions. This will, in turn, reduce the income from foreign tourists by about 113 billion Baht from the target of 600 billion Baht. The number of tourists will decrease by 8 percent, compared to 14.1 million tourists in 2009.
- The impact on the investment, consumption and export: the effect on the investors, businesses, and people confidence will cause a deceleration in consumption and investment. It may also reduce the confidence of foreigners to order goods from Thailand which will have an impact on the export sector.
- The impact on budget disbursement: the unfavorable political condition both before and after the political unrest is expected to put a difficulty in disbursing budget under the SPII and the 2011 fiscal budget.
(3) The drought and the fluctuation in agricultural product prices could also affect the Thai economy. Providing the farm income guarantee scheme and the increase of price in the world market, the agriculturists’ income in the remaining of 2010 is expected to be higher than in 2009. Nevertheless, agricultural production remains at risk from drought. In addition, agricultural price fluctuation tends to be more intense in response to the expectation of global economic and financial condition as well as the alteration of exchange rate between major currencies. This situation will affect the price of oil and other primary commodities in the world market.
(4) The fluctuation of exchange rate and the Thai Baht appreciation that are combined with inflationary pressure: In the remaining of 2010, the Thai Baht will remain under appreciation pressure and tends to increasingly fluctuate. The appreciation pressure of Thai baht currency tends to be generated mainly by the changing of economic fundamental in major economies. Meanwhile, the exchange rate fluctuation tends to be more intense due to concerns over sovereign risks in European countries. The appreciation of Thai Baht (combined with rising inflation and exchange rate intervention in export-competing countries) could affect the performance of export sector, especially in European market will be aggravated by the economic downturn.
According to the above mentioned risks, NESDB maintain the previous economic projection released on the 22nd of February 2010. That is the Thai economy is forecasted to grow by 3.5 — 4.5 percent with the inflation rate of 3.0 — 4.0 percent and current account surplus of 4.1 percent of GDP.
"...The projection of the economic growth rate is between 3.5-4.5 percent..."
5. Economic Management for 2010
1With the contribution from the strong economic expansion in the first quarter and the betterthan- expected global economic condition, the Thai economy in 2010 has an opportunity to grow at a faster pace than previously expected. Nevertheless, the political instability prevents Thai economy from gaining a full benefit from the world economic recovery. The recent deteriorating political condition tends to jeopardize economic momentum that has been accumulated by continued economic recovery. Meanwhile, the strong export expansion, which is the key driver for economic recovery, remains subjected to downside risks posed by the debt crisis in European countries and the alteration of exchange rate between major currencies, as well as the continuity of Chinese economic expansion. In addition, the drought posed a great risk to agricultural production. In this respect, the key issues of economic management in 2010 are as follows:
(1) Restoring economic and political confidences by restoring Thailand images and confidences among Thai people, foreign tourists and investors in order to mitigate the negative impacts on economic expansion. This includes the expedition of compensation measures for people who suffered from political unrests.
(2) Minimizing downside risks to agricultural production posed by the parched situation. This includes the implementation of appropriate measures to stabilize agricultural price which is likely to fluctuate in response to changing global economic and financial condition.
(3) Implementation of well-balanced monetary and exchange rate policy to (i) facilitate economic recovery in the remaining of the year, (ii) maintain economic stability under the circumstances of global economic and financial fluctuation, and (iii) maintain the price competitiveness of export goods.
(4) Speeding up key investment projects under the second stimulus package (SP2) to offset the reduction of government spending under the regular budget, and to assure investor confidence.
(5) Monitoring and preparing safeguard measures to mitigate the impacts of debt crisis in European countries, particularly its impact on capital flow and exchange rate fluctuation. This includes the long-run measures to assist the production and export sectors that are suffered from the slowdown of European countries, and the asymmetric alteration of exchange rate between Thai baht, RMB, U.S. Dollar and Euro that tends to bias against Thai exports in European market.
Economic Projection 2010
Actual Data Projection 2010
2007 2008 2009 24 May 2010 1/
GDP (at current prices: Bil. Bht) 8,529.8 9,075.5 9,050.7 9,729.5
GDP per capita (Bht per year) 129,240 135,455 134,683 144,141
GDP (at current prices: Bil. USD) 245.8 273.4 263.6 299.4
GDP per capita (USD per year) 3,724.2 4,080.6 3,922.6 4,435.1
GDP Growth (at constant prices, %) 4.9 2.5 -2.2 3.5 - 4.5
Investment (at constant prices, %) 1.5 1.2 -9.0 4.6
Private (at constant prices, %) 0.6 3.2 -12.8 5.0
Public (at constant prices, %) 4.2 -4.6 2.7 3.5
Consumption (at constant prices, %) 2.8 3.0 -0.1 2.8
Private (at constant prices, %) 1.7 2.7 -1.1 3.0
Public (at constant prices, %) 9.7 4.6 5.8 1.6
Export volume of goods & services (%) 7.8 5.1 -12.7 8.8
Export value of goods (Bil. USD) 151.3 175.2 150.9 174.3
Growth rate (%) 18.2 15.9 -13.9 15.5
Growth rate (Volume, %) 11.9 4.9 -14.2 9.0
Import volume of goods & services (%) 4.4 8.5 -21.8 16.4
Import value of goods (Bil. USD) 138.5 175.1 131.5 163.0
Growth rate (%) 9.1 26.5 -24.9 24.0
Growth rate (Volume, %) 3.5 12.3 -23.0 18.0
Trade balance (Bil. USD) 12.8 0.1 19.4 11.3
Current account balance (Bil. USD) 2/ 15.7 1.6 20.3 12.2
Current account to GDP (%) 6.3 0.5 7.7 4.1
Inflation (%)
CPI 2.3 5.5 -0.9 3.0 - 4.0
GDP Deflator 3.2 4.5 2.0 3.0 - 4.0
Source: Office of National Economic and Social Development Board, 24th May 2010Note 1/ The projection will be remained as previously announced on the 22nd February 2010.
2/ 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--