thailand economic monitor (first semester 2010)
DESCRIPTION
Exports – the single engine driving Thailand’s economy in recent years – are likely to help the country sustain its recovery throughout 2010. Over the long run, however, it is important that Thailand develop an additional engine of growth to reduce its vulnerability to external economic shocks in the future. To achieve that, the World Bank recommends that Thailand create more higher value added jobs in services and manufacturing. It also suggests that Thailand maintain the prudent fiscal policies, which have helped cushion some of the impact of the global recession during 2008-2009.TRANSCRIPT
Press Briefing
June 24, 2010
2
overview
• The Thai economy has been running on one engine: external
demand
• Good news: engine working well thanks to continued recovery in
global economy (with help from China)
• Effects of the political crisis on GDP largely offset by external
demand, but social impact likely greater
• Not-so-good news: high vulnerability to external shocks (Greece?)
and below-potential growth in 2011 due to unfinished recovery in
advanced economies and continued uncertainty at home
Thailand’s dependence on external demand bodes well for the near term,
but a second engine of growth is needed for sustained long-term growth.
3
1. running on one engine
Thailand’s near-term growth remains driven by three sectors linked to
external demand: manufacturing, logistics and tourism.
1000
1050
1100
1150
475
525
575
625
Re
al T
HB
, SA
(le
vels
)
Re
al T
HB
, SA
(le
vels
)
3 Sectors linked to foreign demand (53 pct of GDP)
13 Sectors linked to dom. demand (47 pct of GDP)
GDP, right axis
Source: NESDB and World Bank Calculations
4
1. running on one engine
The global financial crisis exposed the risks of relying on one engine:
when the external fuel is cut, the economy falls.
6.4 5.2
2.9
-4.2
-7.1
-4.9
-2.7
5.8
12.0
77
71
79
99 96
91
99
85
82
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2008Q1 2008Q3 2009Q1 2009Q3 2010Q1
Perc
ent
Perc
ent
Contribution from other sectors (47% of 2009 GDP)
Contribution from sectors linked to external demand (53% of 2009 GDP)
Overall GDP Growth
Change in GDP accounted for sectors linked to external demand (right axis)
50
60
70
80
90
100
110
120
130
140
150
160
US
EU
Japan
China
Nominal merchandise imports (January 2007=100)
6.4 5.2
2.9
-4.2
-7.1
-4.9
-2.7
5.8
12.0
77
71
79
99 96
91
99
85
82
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2008Q1 2008Q3 2009Q1 2009Q3 2010Q1
Pe
rce
nt
Pe
rce
nt
Contribution from other sectors (47% of 2009 GDP)
Contribution from sectors linked to external demand (53% of 2009 GDP)
Overall GDP Growth
Change in GDP accounted for sectors linked to external demand (right axis)
GDP, y/y growth rates
Source: BoT, NESDB and World Bank Calculations
5
1. running on one engine
But once the fuel started flowing again, the economy returned to its
previous ‘flight path’.
50
60
70
80
90
100
110
120
130
140
150
160
US
EU
Japan
China
Nominal merchandise imports (January 2007=100)
50
60
70
80
90
100
110
120
130
140
150
160
US
EU
Japan
China
Nominal merchandise imports (January 2007=100)
6.4 5.2
2.9
-4.2
-7.1
-4.9
-2.7
5.8
12.0
77
71
79
99 96
91
99
85
82
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2008Q1 2008Q3 2009Q1 2009Q3 2010Q1
Pe
rce
nt
Pe
rce
nt
Contribution from other sectors (47% of 2009 GDP)
Contribution from sectors linked to external demand (53% of 2009 GDP)
Overall GDP Growth
Change in GDP accounted for sectors linked to external demand (right axis)
6.4 5.2
2.9
-4.2
-7.1
-4.9
-2.7
5.8
12.0
77
71
79
99 96
91
99
85
82
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2008Q1 2008Q3 2009Q1 2009Q3 2010Q1
Pe
rce
nt
Pe
rce
nt
Contribution from other sectors (47% of 2009 GDP)
Contribution from sectors linked to external demand (53% of 2009 GDP)
Overall GDP Growth
Change in GDP accounted for sectors linked to external demand (right axis)
6.4 5.2
2.9
-4.2
-7.1
-4.9
-2.7
5.8
12.0
77
71
79
99 96
91
99
85
82
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2008Q1 2008Q3 2009Q1 2009Q3 2010Q1
Pe
rce
nt
Pe
rce
nt
Contribution from other sectors (47% of 2009 GDP)
Contribution from sectors linked to external demand (53% of 2009 GDP)
Overall GDP Growth
Change in GDP accounted for sectors linked to external demand (right axis)
US
EU
Japan
China
Nominal merchandise imports (January 2007=100)
50
60
70
80
90
100
110
120
130
140
150
160
US
EU
Japan
China
Nominal merchandise imports (January 2007=100)
Source: BoT, NESDB and World Bank Calculations
GDP, y/y growth rates
6
1. running on one engine
Source: Bank of Thailand and World Bank staff calculations.
About 80 percent of Thailand’s export growth since November has come
from East Asia, mostly due to restocking in global supply chains.
-10.0
10.0
30.0
50.0
70.0
90.0
110.0
Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10
ASEAN
China
Other APEC
EU
US
Others
Contribution to nominal export growth (percent , share out of 100)
7
1. running on one engine
The electronics sector has been a key contributor to the recovery.
40
45
50
55
60
65
70
75
80
60
70
80
90
100
110
120
130
140
JAN 2008 APR 2008
JUL 2008 OCT 2008
JAN 2009 APR 2009
JUL 2009 OCT 2009
JAN 2010 APR 2010
Pe
rce
nt
Ind
ex
(2
00
8 =
10
0)
Production Index (left axis)
Capacity Utilization (right axis)
60
70
80
90
100
110
120
JAN 2008
APR 2008
JUL 2008
OCT 2008
JAN 2009
APR 2009
JUL 2009
OCT 2009
JAN 2010
APR 2010
Ind
ex
(2
00
8 =
10
0)
E&E Export Index
Overall Exports (excl. gold), Index
All figures are seasonally adjusted levels and except for overall exports refer to electrical and electronics only.
Source: Bank of Thailand and World Bank staff calculations.
0.20
-3.65
3.40
-4.00
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
2000-2008 average 2009 2010 f
Pe
rce
nta
ge P
oin
ts
8
1. running on one engine
On the demand side, inventory restocking – following massive
drawdowns in 2009 – has made a large contribution in the first quarter,
but may have run its course.
Source: NESDB and World Bank staff calculations.
Contribution of inventories to yearly GDP growth
Q1 Actual: 1.88
Q2-Q4 (proj.): 1.52
9
1. running on one engine: impact of recent political turmoil
• As of March, forecast growth of 6.2 percent for 2010
• Performance of economy in the first quarter may have raised forecast
closer to 7 percent
• Impact of the political crisis on tourism, domestic demand likely erase
these gains
• Overall, growth expected to come at 6.1 percent as better-than-
expected first quarter performance is offset by political crisis
• However, impact on GDP may understate social impact, as relatively
more workers in affected sectors
Because the economy is driven primarily by external conditions, GDP
should expand in 2010 despite negative impact the political crisis, but
GDP likely understates social impact.
10
1. running on one engine
The manufacturing-for-exports sector (39 percent of GDP) was largely
undisrupted by the crisis and performed well in other political events.
1/ Index: Real Manufacturing Value Added in 2000 = 100.
Lines show difference in 4-quarter moving average of index for countries indicated.
Source: CEIC and World Bank Calculations
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Dif
fere
nce
in In
de
x 1
/
Pol Event
THA-MYS
THA-IDN
THA-PHL
PAD Protests Coup
Airport
ClosurePAD
Protests
Songkran
Riots
11
1. running on one engine
The events in April and May are likely to have an impact on tourism (8 pct
of GDP) for at least another two quarters.
Thin lines shows difference in 4-quarter moving average of index for countries indicated.
Source: CEIC and World Bank Calculations
-10
0
10
20
30
40
50
60
70
0
20
40
60
80
100
120
140
160
180
200
Dif
fere
nce
in I
nd
ice
s
Ind
ex
(20
04
ave
rage
= 1
00
)Indonesia
Thailand
Thailand - Indonesia (right axis)
Airport closure
12
1. running on one engine
Household consumption posted solid gains in the first quarter, but
consumer confidence and other consumption indicators declined sharply
in April.
66
68
70
72
74
76
78
80
82
70
75
80
85
90
95
100
105
110
115
120JA
N 2
00
8
FEB
20
08
MA
R 2
00
8
AP
R 2
00
8
MA
Y 2
00
8
JUN
20
08
JUL
20
08
AU
G 2
00
8
SEP
20
08
OC
T 2
00
8
NO
V 2
00
8
DEC
20
08
JAN
20
09
r
FEB
20
09
r
MA
R 2
00
9 r
AP
R 2
00
9 r
MA
Y 2
00
9 r
JUN
20
09
r
JUL
20
09
r
AU
G 2
00
9 r
SEP
20
09
r
OC
T 2
00
9 r
NO
V 2
00
9 r
DEC
20
09
r
JAN
20
10
r
FEB
20
10
r
MA
R 2
01
0 r
AP
R 2
01
0 p
MA
Y 2
01
0
Ind
ex
(20
08
=1
00
)
Gross Value Added Tax at 2000 prices (Million baht)
Real Imports of Consumer Goods at 2000 Prices (Million US$)
UTCC Consumer Confidence Index
Source: Bank of Thailand and UTCC.
Retail16%
Hotels & Restaurants
7%
Agriculture39%
Manufacturing, Transport &
Communication
17%
Others21%
13
1. running on one engine
The resilience of the overall GDP to the political turmoil does not
translate into limited social impact given the large number of workers in
affected sectors.
Source: NSO Labor Force Survey, NESDB.
49 pct
of GDP
Labor force by sector of employment
17 pct
of GDP
14
1. running on one engine
The limited reaction from financial markets confirms the solid financial
position of Thai economy and likely limited overall impact on GDP.
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Yie
ld (
pe
rce
nt)
Time to maturity (years)
31/03/2009
15/02/2010
24/05/2010
-70
-60
-50
-40
-30
-20
-10
0
Deterioration
Improvement
May 19
Thailand stock market index compared to
a basket of regional indices 1/
1/ Regional indices include Malaysia, Philippines,
Singapore, China, Korea and Indonesia.
Index: 1/1/2000 = 100
Source: World Bank Development Prospects Group
Thailand Government yield curve
Source: Thai Bond Market Association
15
1. running on one engine
Current account surpluses support a strong external position, while ‘hot
money’ portfolio flows have been limited due to the political turmoil.
-10,000
-5,000
0
5,000
10,000
15,000
20,000
Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010
Other (incl. errors & omissions) Government (incl. BoT & SOE)Bank Net Portfolio FlowsInward FDI Current AccountBoP
Source: Bank of Thailand
16
1. running on one engine
Inflation has risen from negative readings in 2009, but remains below
(already low) historical levels.
Source: Ministry of Commerce, World Bank Staff Calculations
-2
-1
0
1
2
3
4
Core CPI (actual,12-mo MA)
Average core CPI in 2006 and 2007
(1.4 percent per year)
BoT Inflation
Target
17
1. running on one engine
Ultimately the relatively favorable outlook of the external environment
dominates prospects for the Thai economy in 2010.
Source: World Bank Global Economic Prospects
2008 2009 2010f 2011f
GDP: World 1.7 -2.1 3.3 3.3
High Income 0.4 -3.3 2.3 2.4
Developing 5.7 1.7 6.2 6
Exports: World 3.2 -11.6 11.2 6.8
High Income 2 -12 6.6 6.2
Developing 6.5 -10.6 9.4 8.3
World
-15
-10
-5
0
5
10
15
Pe
rce
nt
High Income
Developing
World
Exports(dotted lines)
GDP(solid lines)
18
1. running on one engine
The favorable external outlook and low base of 2009 means that Thailand
post a high growth rate in 2010 despite the impact of the political crisis.
1000
1020
1040
1060
1080
1100
1120
1140
1160
1180
2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4
Re
al Q
uar
terl
y G
DP,
leve
ls, s
eas
on
ally
ad
just
ed
(TH
B B
illio
n)
Actual Forecasts
2009 year-on-yeargrowth: -2.2%
2008 2009 2010
2010 year-on-yeargrowth: 6.1%
2008 year-on-yeargrowth: 2.5%
Source: NESDB, World Bank calculations and forecasts
Quarterly GDP
Annual GDP growth
19
1. running on one engine
But risks are elevated: to avoid a deeper crisis, European countries must
cut their deficits sharply, which will reduce demand for Thai imports…
-10
-8
-6
-4
-2
0
2
4
6
8
10
Greece* Ireland Spain Portugal Italy
Primary balance in 2009
Required fiscal balance adjustment over 2010 -2020 to reach 60% of debt-to-GDP by 2030
% of GDP
* Data for Greece are based on the assumption that adjustment amounting to 7.6% of GDP is implemented in 2010.
Source: World Bank Global Economic Prospects
20
1. running on one engine: external demand
... as will a further weakening of the euro, which would also affect
tourism. Europe is currently the major source of tourists in Thailand.
Middle East, 3.4
Emerging East Asia,
10.2
Japan, 7.6
China, 5.6
Europe, 27.8
US, 4.5
Australia, 4.7
South Asia, 5.4
ASEAN, 27.5
Others, 3.3
Nationality of tourists to Thailand (Jan 08 - Nov 09, percent)
Source: Office of Tourism Development and World Bank staff calculations.
21
1. running on one engine
With the economy’s fate tied to external conditions and global demand
still below potential, growth will slow down to 3.6 percent in 2011.
• “Easy growth” factors will be exhausted in the first half of :
– base effects
– reactivation of existing capacity
– inventory restocking in Thailand and abroad
• External demand will continue to fuel Thailand‟s growth engine, but
the pace will be below historical averages
– unfinished recovery in US, Japan
– fiscal consolidation and slow growth in Europe
– Asian imports robust, but growth will slow down
• Sectors linked to domestic demand likely to grow even slower than in
the past due to continued political uncertainties in 2011
22
2. resilience for long-term growth: strong „body‟
The financial structure of the Thai economy is solid with strong public,
private, and external balance sheets.
Perc
ent
Trill
ion
THB
Capital Funds-LHS Gross NPL - LHS
% CAR - RHS % NPL to total loan - RHS
Source: Bank of Thailand
23
2. resilience for long-term growth: strong „body‟
Deficits must eventually be reduced to ensure debt sustainability...
Thailand: Projected Debt Ratios (fiscal years)
Source: FPO, PDMO and World Bank calculations and projections.
45.9%45.9%
49.4%51.5%
52.4% 52.1% 51.3% 50.6%
0%
1%
2%
3%
4%
5%
6%
25%
30%
35%
40%
45%
50%
55%
60%
65%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Bu
dge
t D
efi
cit
( p
erc
en
t o
f G
DP
)
Pe
rce
nt
of
GD
P
Indirect Debt/GDP
Direct Debt/GDP
Deficit Assumed
Indicative
debt ceiling
24
2. resilience for long-term growth: strong „body‟
… but more public investments are needed while disbursements of
public investment plans have remained sluggish.
Public Investment
207 201 103
129 130
122
263 260
218
11
8
126
49
-
100
200
300
400
500
600
700
CY2008 2009 2010F
Bill
ion
bah
tSP2 (Others)
SP2 (Emergency Decree: Bt350 bn)
SP1
SOEs
Local Administrative Org.CG (on-budget)
Source: FPO, PDMO and World Bank calculations and projections.
25
2. resilience for long-term growth: firing up the second engine
The services sector in Thailand underperformed compared to its peers
and services as a share of GDP declined between 2001 and 2009.
Source: CEIC and World Bank Calculations
20
30
40
50
60
70
80
90
100
110
Pe
rce
nt
Contribution of Services to GDP Growth (2001-2008 average)
Share of Services in GDP (2008)
Average of Contribution
Average of Share
26
2. resilience for long-term growth: firing up the second engine
A long-term growth strategy should include both sectors linked to
domestic as well as external demand.
• Elements of a new growth strategy potentially include:
– Higher growth in the services sectors, especially in high-value added
services such as medical tourism or creative industries, possibly driven
by increased trade in services
– Increase in the number of high value-added tasks in manufacturing (such
as product design and development) that are performed in Thailand
– Boost productivity in agriculture
• These elements may call for, among others:
– an increased supply of highly-skilled and creative professionals
– regulatory and institutional reforms (e.g. in the services sector)
– greater regional integration and trade of both goods and services
27
summary: growth projections
The economy is expected to grow by 6.1 percent supported by export-
related manufacturing on the production side and inventory restocking
and exports on the demand side.
Real GDP Growth Rates - Percent, Year-on-Year
Share in 2009 2010 2010 2011
2009 GDP Year Q1 Q2 Q3 Q4p Year(p) Year (p)
Consumption 63.2 -0.1 4.5 0.4 0.9 2.7 2.1 3.7
Private 53.1 -1.1 4.0 1.4 2.0 2.0 2.3 3.5
Public 10.1 5.8 6.9 -5.0 -4.0 6.5 0.8 5.0
Gross Fixed Capital
Formation 20.7 -9.0 12.6 6.1 6.0 7.6 8.0 5.4
Public 5.7 2.7 2.7 4.0 5.0 6.5 4.6 5.0
Private 15.0 -12.8 15.8 7.0 6.5 7.9 9.3 5.5
Change in Inventories -2.3 -268.2 137.1 260.0 88.0 -94.0 -145.6 -40.0
memo: level of chg. in inventories -98,510 24,773 23,251 -4,217 1,081 44,888 26,933
Total Domestic Demand 81.5 -6.6 18.6 6.2 5.8 2.0 7.8 3.6
Exports 65.1 -12.7 16.2 17.7 11.5 7.0 12.8 7.0
Goods 52.4 -14.0 16.5 20.6 13.2 8.0 14.3 7.7
Services 12.8 -6.9 15.0 4.0 3.5 3.0 6.6 4.0
Imports 46.6 -21.8 31.4 25.0 15.1 6.7 18.5 8.2
Goods 36.8 -23.7 43.2 31.0 17.0 6.1 22.4 9.0
Services 9.8 -13.5 -4.5 4.0 7.0 9.5 4.0 4.5
Net Foreign Demand 18.5 23.4 -10.3 -4.2 2.1 7.6 -1.7 3.5
By Sectors:
Agriculture 8.9 -0.5 0.2 0.5 1.5 1.0 0.8 2.0
Industry 44.1 -4.2 20.7 8.4 7.7 3.8 9.9 4.7
Services 47.0 -0.4 5.8 1.2 2.8 2.4 3.1 2.7
GDP 100.0 -2.2 12.0 4.6 5.1 2.9 6.1 3.6
Source: World Bank Projections
Thank you!
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