New Industrial Economies (NIEs) and India, generally, had a positive growth. In the second quarter, Singapore grew by 18.8 percent on a year-on-year basis, increase from the 16.9 percent growth in the first quarter. For the first half of the year, Singapore grew by 17.9 percent, compared to the 2.8 percent growth in the same period of last year. The strong growth momentum in the first half of 2010, however, is not likely to continue into the second half of the year because of the anticipated plant maintenance shutdowns in the biomedical manufacturing cluster which will drag down overall growth.
"...New Industrial Economies (NIEs) and ASEAN economies have started to slow down in the second quarter. Taiwan, Malaysia, Korea, Hong Kong, Vietnam and Indonesia grew at 12.5, 8.9, 7.2, 6.5, 6.4 and 6.2 respectively. In addition, the inflation rates in these countries have generally increased. "
Indian economy is likely to grow by 9.3 percent on a year-on-year basis in the second quarter, increase from the 8.6 percent growth in the first quarter. The economic expansion in India is a result of the fiscal stimulus measures and the loose monetary policy, which caused a continuous expansion of the domestic demand.
Taiwan, South Korea and Hong Kong all expanded at a slower rate of 12.5, 7.2 and 6.5 percent respectively, down from the 13.7, 8.1 and 8.0 percent growth correspondingly. The slowdown in these economies was due to a fall in both private and government consumption and investment. In Korea, the industrial production grew by 19.5 percent, a slower pace than the first quarter. The weakening of Korean won by 6.3 percent in these 3 months (May-July) enhanced the country’s competitiveness especially in the export market.
Inflation rates in most countries tended to rise compared to the previous quarter, particularly India where inflation peaked at 10.6 percent, followed by Singapore, Hong Kong and Korea where inflation rates were 3.5, 3.0 and 2.7 percent respectively. Taiwan was an exception since its inflation rate reduced to 0.9 percent growth in this second quarter.
ASEAN economies tend to grow at a sluggish pace. On a year-on-year basis, the Malaysian, Vietnamese and Indonesian economies expanded by 8.9, 6.4 and 6.2 respectively, a slower rate compared to that of 10.1, 5.8 and 5.7 percent in the previous quarter. Industrial production continued to grow, as well as the service sector that persistently expanded as a result of robust private consumption, exports and domestic demand. In the second quarter, the exchange rate of the Vietnamese dong against the US dollar weakened by 8.6 percent (Y-o-Y). As of the first half of the year, the dong weakened by 7.8 percent. Inflation rates in Vietnam, Indonesia and Malaysia remained at a high level of 9.0, 4.3 and 1.7 percent respectively.
Global Economic Outlook in the second half of 2010
The global economy in 2010 is forecasted to grow by 3.9-4.3 percent, better than the previous forecast in May 2010. The trend is explained by: (1) the upturn of private consumption and investment, (2) the persistent expansion in manufacturing production with a sign of slowdown, and (3) the decreasing inventory stock cycle in major industrialized countries, NIEs and developing countries in Asia. The global economy is expected to grow continuously which is due to the economic recovery in the USA, Japan and China, in particular. Euro currency tends to appreciate after the investor’s distress on European debt problem begins to ease. However, the public debt crises in Eurozone would slowdown the recovery pace of the region, and in turn, affect global economic expansion in the forthcoming period. It is expected that the US, Eurozone, Japan and China would expand by 3.0, 0.9, 1.1 and 9.7 percent respectively. The countries in NIEs such as Singapore, South Korea, Taiwan, Hong Kong and India are expected to grow by 10.0, 5.8, 7.0, 5.2 and 8.3 percent respectively, while the economies in ASEAN, namely, Malaysia, Indonesia and Vietnam are anticipated to grow by 7.0, 6.0 and 6.0 percent respectively.
"...The global economic growth in 2010 is expected to be higher than the forecast in May, however, the expansion tends to occur at a slower pace. "
GDP Growth of Major Economies Countries 2008 ------------- 2009-------------- 2010 (%YoY) Year Q1 Q2 Q3 Q4 Year Q1 Q2 Year* World* 2.5 -3.5 -1.7 -0.4 2.8 -0.6 6.7 - 3.9-4.3 USA 0.0 -3.8 -4.1 -2.7 0.2 -2.5 2.4 3.2 3.0 Eurozone 0.4 -5.2 -4.9 -4.1 -2.1 -4.1 0.6 1.7 0.9 UK -0.1 -5.5 -5.9 -5.3 -2.9 -4.9 0.2 1.6 1.1 Japan -1.2 -8.9 -5.7 -5.2 -1.1 -5.3 4.7 2.0 1.5 China 9.0 6.5 7.4 8.1 9.1 9.1 11.9 10.3 9.7 India 6.7 5.8 6.0 8.6 6.5 7.4 8.6 - 8.3 South Korea 2.3 -4.3 -2.2 1.0 6.0 0.2 8.1 7.2 5.8 Taiwan 0.7 -9.1 -6.9 -1.0 9.1 -1.9 13.7 12.5 7.0 Hong Kong 2.2 -7.7 -3.8 -2.4 2.5 -2.8 8.0 6.5 5.2 Singapore 1.8 -8.9 -1.7 1.8 3.8 -1.3 16.9 18.8 10.0 Malaysia 4.7 -6.2 -3.9 -1.2 4.4 -1.7 10.1 8.9 7.0 Philippines 3.7 0.5 1.2 0.2 2.1 1.1 7.3 - 5.5 Vietnam 6.2 3.1 4.5 6.0 6.9 5.3 5.8 6.4 6.0 Indonesia 6.0 4.5 4.1 4.2 5.4 4.5 5.7 6.2 6.0 * NESDB estimation
Considering the US economy, there is a clear sign of economic downturn that indicates a fragile recovery in production sector and consumption. The US PMI in July was the lowest in 3 months at 55.5, lower than 56.2 in June. Consumer confidence index also fell to 50.4, the lowest in 5 months. The number of people who have received unemployment benefits before July, 31 reached its peak since April. Despite the reduction of unemployment rate in July which has been reduced to 9.5 percent (14.6 million people), however, the nonfarm payroll employment in July fell by 131,000 people due to the Federal Government quit hiring their 143,000 temporary workers, whereas private sector employment has slightly been improved.
In Chinese economy, manufacturing PMI in July fell to 51.2 which reflected the lowest level in 17 months, down from 52.1 in the preceding month. Industrial production in July expanded by 13.7 percent, a downturn from a 16.5 percent gain in June. In Japanese economy, PMI also showed a sign of slowing down and the appreciation of the yen against the euro which resulted in a higher price of Japanese products would affect its competitiveness in the Eurozone market.
In Eurozone economy, inspite of having signs of improvement but it is not likely that such improvement could be sustained in the second half of the year, owing to the clearer tightened fiscal policy imposed by the government in many countries. Additionally, Greece, the UK and Ireland will have to manage their public debt and continual budget deficit problems. The European Commission has forecasted the Eurozone economy’s public debt to be at 84.7 percent of GDP this year, with the closer monitor of the double-dip recession.
Meanwhile, twin deficits problem is still enduring in Greece, Spain, Italy and Turkey. The UK and France have started to witness the same problem and may lead to the budget and current account restructuring to prevent the problem’s severity. Also, Euro currency has started to appreciate, whereas, the US dollar has started to depreciate, this will lead to more sluggish exports and production of the Eurozone economy and have negative impacts on Thailand’s exports and production in the second half of 2010.
"...Thailand’s economic growth pace in 2010 is edging up to high territory providing a stronger-thanexpected economic expansion in the first half and the sign of encouraging rate of economic expansion in the remaining of the year. Nevertheless, the economic growth pace tends to decelerate in the last two quarters due to the trend of global economic slowdown and the high base effect. "
4. Thai Economic Outlook in the Second Half and 2010
Thailand’s economic growth pace in 2010 is edging up to high territory providing a strongerthan-expected economic expansion in the first half and the sign of encouraging rate of economic expansion in the remaining of the year that will be supported by (i) the improvement of global economic and trade conditions; (ii) the ease of domestic political unrest; (iii) the economic momentum that has been accumulated by continual economic recovery ; and (iv) the supportive economic fundamental including financial liquidity, low real interest rate, and the proceeding of government measures. Nevertheless, taking into consideration the trend of global economic slowdown and the high base effect in domestic economy, Thailand’s economic growth pace tends to decelerate in the last two quarters. In addition, these two conditions pose to be a growth constraint in early 2011.
Supporting factors for Thai economic recovery
(1) The global economic and trade environments remain supportive for Thailand’s economic expansion in the latter half of 2010 despite the recovery in major economy tends to lose some momentum. In the baseline scenario, the pace of economic recovery in major economies is expected to decline to historical norm in the latter half. This situation will cause global economic slowdown in the remaining of 2010 and reduce the pace of Thailand’s export expansion. Nevertheless, the negative impacts will be partially offset by growing intraregional trade and the broadened export market structure.
(2) The fast recovery of tourism sector as seen in the increase of the number of foreign tourists in July after a two-month consecutive contraction of 12.9 percent and 1.1 percent in May and June respectively. Taking into consideration the easing political condition in the latter half and a favorable economic condition in Asia, the tourism sector is expected to return to its normal condition and support economic expansion in the latter half.
(3) The improvement of domestic political condition will ensure the recovery of consumer and investor confidences, and facilitate economic expansion. The improvement of economic sentiment could be seen in the increase of consumer confidence index from 75.0 in May to 77.1 in June and the increase of business sentiment index from 46.0 percent to 52.1 percent over the same period. Meanwhile, foreign investors turned their investment position in stock market from the net sell of 4,097 and 58,745 million baht in April and May respectively to the net buy of 6,879 million baht in July.
(4) Financial liquidity remains favorable. The ease of financial condition will be among supporting factors for the expansion of real economic activity in the latter half of 2010, providing (i) the ample excess liquidity in commercial banking system of 1.18 trillion baht at the end of June; (ii) the improvement of capital and bond markets that will accommodate financial demand from business sector; and (iii) the target of credit extension by Specialized Financial Institutions of 821,000 million baht for the whole year of 2010 that will facilitate financial demand from grass-roots economy and SMEs.
(5) Low real interest rate: In July, the real deposit rate remains in a negative region of -2.48 percent and the real lending remains in the neighborhood of the bottom of current interest rate cycle of 2.70 percent. Although, the interest rate tends to edge up in the remaining of 2010, the pace of interest rate increase is expected to be slowly and remains accommodate the expansion of domestic demand.
(6) The appreciation of Chinese RMB that is combined with wage increase tends to be supporting factor for Thai exports and investment in the remaining of the year.
(7) Government stimulus measures: The expedition of disbursement from Thai Khem Kaeng (SP 2) budget and the regular budget of FY 2011 will help reduce the impacts from the reduction of government expenditure under the regular budget of FY 2010 as well as reducing the impacts of global slowdown in the latter half. Moreover, the extension of the three measures to reduce living costs till the end of 2010 will lower the price pressure and support the economic expansion in the second half.
(8) The farmers’ income in the second half of this year tends to be higher than that in 2009 due to (i) the increase in price of major agricultural commodities such as rubber, cassava, and sugar cane; and (ii) the implementation of income guarantee scheme for farmers.
Risk Factors and Limitations
(1) Global economic slowdown: In the base scenario, the pace of economic recovery in major economies is expected to decline to historical norm in the latter half. Combined with the high base effect in domestic economy, the pace of Thailand’s economic expansion tend to decline gradually in the latter half. This situation could be growth constraint in early 2011. In addition, there remain negative factors which potentially cause the slowdown in major economies to be more pronounced than in baseline scenario.
(2) The fluctuation of international capital flow and exchange rate between major currencies: In the baseline scenario, capital inflow and rising current account surplus will pose an appreciation pressure on Thai baht currency. However, capital movement and exchange rate between major currencies could be volatile in response to the fluctuation of economic condition and monetary policy direction in major economies. This situation requires close monitoring, particularly economic condition and monetary policy direction in the US.
(3) Domestic political condition and the resolution of national conflict: The recovery of tourism sector and investment is conditional upon the constant improvement of domestic political environment. In this respect, the reemergence of the political unrest and the delay of the measures for conflict resolution will hinder the recovery of economic sentiments.
(4) The agricultural production and the farmer’s income could be negatively affected by: (i) the drought that requires close monitoring and resolution measures as water in major dams are still lower than their normal level; and (ii) the appreciation of Thai baht currency amid the tendency of continual Vietnamese currency depreciation.
(5) The fluctuation of oil prices: Although the global economic slowdown tends to reduce the pressure on oil demand, oil price in the latter half could increase and fluctuate under the condition of: (i) the fluctuation of exchange rate between major currencies; and (ii) the natural disaster and supply disruption in oil producing countries.
"...The key assumption for 2010 projection: global economy and trade volume grow by 3.9 - 4.3 and 7.5 percent. An average Dubai crude oil price in 2010 is in the range of 75-80 dollars per barrel. Export and import prices in US dollar terms increase by 8.5 and 8.0 percent. The number of the foreign tourists is at 14.8 million persons "
Key Assumptions for 2010 Projection
(1) The global economy and trade volume is expected to grow by 3.9 - 4.3 and 7.5 percent respectively. This assumption is revised upward from 3.8 - 4.2 percent and 5.0 percent in previous projection assumption. This revision is in line with the stronger-than-expected global economic expansion in the first half of 2010.
(2) An average Dubai crude oil price in 2010 is estimated at 75-80 dollars per barrel, narrowed down from 75 — 85 US dollar in previous projection assumption. From the beginning of the year until the August 18, 2010, the crude oil prices (Dubai) is at the average of 76.51 US dollars per barrel. During the remaining of the year, the average crude oil price is projected to be in the range of 75-85 US dollars per barrel.
(3) Export and import prices in US dollar terms are projected to increase by 8.5 and 8.0 percent, respectively which is the upward revision from the assumption of 6.5 and 6.0 percent in previous projection. This upward revision reflected the strong increase of export and import prices in the first half of the year.
(4) The number of the foreign tourists in 2010 is forecasted at 14.8 million persons, increase from 14.1 million persons in 2009 but decline from 16.0 million persons in previous projection assumption. This downward revision reflected the impacts of the political unrest in the second quarter.
Economic outlook for 2010: Thai economy is forecasted to grow in the range of 7.0 - 7.5 with 3.0 - 3.5 percent headline inflation and a current account surplus of 4.9 percent of GDP.
"...Thai economy is forecasted to grow in the range of 7.0 - 7.5 with 3.0 - 3.5 percent headline inflation and a current account surplus of 4.9 percent "
In the press release on 24 May 2010, Office of the National Economic and Social Development Board (NESDB) maintained its economic projection that was released on 22 February 2010 due to the uncertainty in political condition. That is, the growth projection was maintained in the range of 3.5 — 4.5 percent with 3.0 - 4.0 headline inflation and a current account surplus of 4.1 percent of GDP.
In this release on 23 August 2010, NESDB revised GDP projection upward to 7.0 - 7.5 percent, due to the following reasons.
(1) The world economic and trade volume are likely to grow at a faster pace than previously forecast. In this projection, the global economy and trade volume in 2010 are forecasted to grow by 3.9 - 4.3 percent and 7.5 percent respectively, compared with the estimated of 3.8- 4.2 percent and 5.0 percent in the previous projection assumptions. Therefore, export growth pace is likely to be higher than in previous projection.
(2) The stronger-than-expected economic expansion in the first half will boost the whole year economic expansion rate to be higher than that in previous projection. In addition, the faster-than-expected expansion in key economic sectors such as the production and export of manufacturing products, and private consumption and investment will provide momentum for strong economic expansion in the remaining of 2010.
(3) The political unrest has not had a major impact on the Thai economy while the recent improvement of political environment has accommodated the recovery of tourism sector. In this respect, the number of foreign tourism is revised downward only slightly from 16.0 million persons in previous projection assumption to 14.8 million persons in this projection assumption.