Thailand

 
Characteristics of the Country

Thailand Economic Review 2006

Thailand's 2005 economic growth forecast is capped at only 3.5-4.5 percent. according to the Bank of Thailand (BOT)'s worst-case assumption based mainly on huge import value against low export growth and uncertain private investment.

BOT adjusted up the export growth forecast from 8-10 percent to 12.5-15 percent, and it also revised up the import forecast to 23.5-26 percent from 14.5-16.5 percent

In the worst-case scenario. Thailand should post US$ 8-US$ 9 billion in trade deficits, doubting the previous forecast of US$ 4-US 5 billion. The current account defici will also widen to US$ 4 billion, or 2.3 percent of the gross domestic product.

But BOT perceives this as a temporary problem that should be improved later on. Growth slowed due to inevitable short-term supply stocks, such as the drought that affected pineapple and rubber exports. But the stocks should be dissolved

Thailand reversed to a trade deficit in the first half of this year from a surplus the previous year after private firms attempt to pile up their stock inventory of fuel-related materials.

Most economists as well as the Ministry of Commerce have anticipated the inventory pile up will not continue in the second half, which should eventually reduce imports and improve the country's trade balance.

In the first five months, trade deficit figure reached US$ 6.6 billion, according to BOT. The deficit should be widened slightly due to pick up in exports, especially in electronics products.

The second half will be driven by the pick up in exports and investment from the public and private sectors. It is still difficult to predict private investment amid high oil prices and global economic slowdown. It weighs heavily on investors' own sentiment

BOT explained that apart from high oil prices, the country had been affected by drought, factory closures and slower growth in electronics exports. The 0.75 percentage point cut in growth target followed contractions in consumption and investment in the private sector, the industrial production index and capacity usage.

However, BOT noted that the negative factors should be short-term and the economy should show higher growth of 5.5-6.5 percent next year

Still, BOT cautioned that the economy might not keep expanding at a fast rate if oil prices rose to unexpected levels and if the economies of trading partners could not achieve their targets. The other factors are the situation in the restive South and the continuing negative affects from the drought.

Despite the factors cited by the BOT, the national Economic and Social Development Board has maintained its growth target at 5.5-6.5 percent. The central bank's revised figures are closer to the World Bank's recent estimate of 5.2 percent growth

Positive signs in Quarter 3

The economy in the third quarter is likely to recover from the first half of the year, with key driver being government spending and exports

These include government supplementary budget of Bt.50 billion, another Bt. 50 billion left over from the last fiscal year, and a Bt. 1.3 billion initial budget to be invested in "mega projects" in 2005

The government estimates to see GDP growth in the second half improve from first-quarter growth of 3.3 percent, a performance achieved amid a lack of consumer and investor confidence.

Exports, particularly from the electronics sector, are another driver for the Thai economy. The weakening baht will be a positive factor for Thai exports, assuming there is no major change in China's yuan or other major currencies

Push 30% Export Growth

Early September, the Ministry of Commerce vowed to push the monthly export growth rate to 30 percent for the rest of the year to ensure that the country meets its overall target of 20 percent expansion in exports this year. The aim was to accelerate export growth to minimize the trade deficit.

Exports grew at an average rate of 12.4 percent per month in the first six months of the year and 16.8 percent in July. For August, the expansion rate might have reached a new record of 30 percent.

Textiles and processed foods are two sectors targeted to lead the drive to boost exports for the rest of the year. Thailand had been fortunate to have maintained a US$ 300-500 million account surplus, which combined with export growth could offset the trade deficit. Thailand's trade shortfall was US$ 85 million in July, compared with a US$ 1.88 billion gap in June.

Before, the National Economic and Social Development Board, announced that Thailand's economy grew 4.4 percent year-to-year in the second quarter, a strong pickup from the 3.3 percent growth reported in the first quarter. The alleviation of drought, a rise in tourism and export-driven growth in industrial output were key factors behind the economic expansion.

The major concern for the economy now was soaring oil prices.

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