Download Thailand Economic Monitor

Thailand
Economic Monitor
November 2006
Launch
November 14, 2006
1
Outline of Presentation Today
I.
Real GDP Growth in 2006
II.
Real GDP growth in 2007
III.
Going forward: Agenda for a balanced
and quality growth
2
I. Real GDP Growth in 2006 will be around 4.5%
… driven mainly by export growth as domestic demand
slowed down sharply
Real GDP Growth (1988 Prices)
14
2005p
12.2
12
11.2
9.4
10
Percent
2006e
11.9
8.7
8
5.4
6
4.6
4.4
4
2
4.5
4.3
3.9
4.5
3.2
1.1
0
Priv C
Gov C
Priv I
Pub I
Export
Import
GDP
3
In 2006, domestic demand was depressed by higher
energy prices, higher inflation and interest rates,
political uncertainties & depressed confidence
Nominal Interest Rates, CPI
Inflation, and Real Interest Rates,
Growth of Energy Prices,
25
8
7
20
6
Percent
Percent, y-o-y
5
15
10
4
3
2
1
5
0
9M
2002
0
2003
2004
2005
9M
2003
9M
2004
Lending rat e
Real int erest rat e
9M 2006
Consumer Confidence Index
9M
2005
9M
2006
Inflat ion CPI
Business Sentiment Index
115
52
110
50
105
48
46
95
90
44
85
42
80
40
75
Jul
Apr
2006Jan
Oct
Jul
Apr
2005Jan
Oct
Jul
Apr
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Jan-04
2004Jan
38
70
Apr-04
Index
100
These have
slowed down
Household
Consumption,
Private
Investment, and
Public Investment
this year
4
High Oil Prices burden firms
•
•
•
Oil prices falling but almost double that of 2002
Manufactures affected: PPI up by 16.1% & Output growth down from 7.1%
to 5.5% between 2002 & 2005
Different sub-sectors affected differently depending on their energy &
transport intensity
Manufacturing sub-sectors and their energy cost share
(Fabricated Metal Products = 1)
Energy Cost Share (of Total Cost)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Manufacturing Sub-sectors
Cement and Concrete Products
Basic Chemical Products
Other Non-metallic Products
Spinning, Weaving and Bleaching
Non-ferrous Metal
Iron and Steel
Other Chemical Products
Plastic Wares
Other Foods
Industrial Machinery
Rubber Products
Textile Products
Saw Mills and Wood Products
Paper and Paper Products
Fabricated Metal Products
Source: Thailand Input-Output Table 2000
Petroleum
Products
10.7
4.4
4.5
1.3
4.8
2.4
4.0
0.6
1.4
2.1
1.3
0.5
0.5
0.9
1.0
Electricity
& Gas
8.3
6.6
5.4
6.6
2.6
5.1
1.7
4.6
3.4
1.3
2.0
2.0
1.8
1.3
1.0
Total
9.6
5.5
4.9
3.8
3.8
3.7
2.9
2.5
2.3
1.7
1.6
1.2
1.1
1.0
1.0
5
Exports growth this year was driven by
quantity growth to traditional markets
• Export volume growth of manufactured products,
esp. electronics recovered from slowdown last year
Contribution to Export Growth by
Various Markets
Export Growth in price, volume, and value
25
35
30
20
15
percent
Percent, y-o-y
25
20
15
10
10
5
5
0
2006 9M
0
2003 9M
Export price
2004 9M
2005 9M
Export volume
2006 9M
Export value
US, Japan and EU
ASEAN
Middle East
Others
China
Australia
6
Export growth began slowing down in 2006H2
while import growth sped up
Goods Export Volume and
Import Volume Growth
Import volume growth
Export volume growth
15
10
8
8
6
6
4
US$ Billion
Percent, y-o-y
4
10
5
2
2
0
-2
0
-2
-4
-4
-6
-8
0
-6
-10
-8
2003
Source: BOT
Q3 2006
Q2 2006
Q1 2006
Q4 2005
Q3 2005
Q2 2005
Q1 2005
Q4 2004
Q3 2004
Q2 2004
Q1 2004
-5
% of GDP
20
Current Account and Trade
Account
2004
2005
2006p
Current Account
T rade Account
Current Account (% of GDP)
T rade Account (% of GDP)
Source: BOT and WB staff estimates
Trade Account is smaller deficit this year and
Current Account in surplus from rebound in services receipts
7
II. Real GDP Growth in 2007
Economic Environment

Oil price continue declining,
but remains at a high level

Inflation falling to 2.5% from
almost 5% this year

Lower nominal interest rate,
but real interest rate rise as
inflation declines

Deceleration in global demand

Int’l crop prices not as robust
as this year

Real exchange rate in Thailand
continues appreciation trend
2004
2005e
2006f
2007f
10.4
7.5
9.7
7.3
1.8
2.7
2.2
3.4
2.5
3.4
2.1
2.5
17.5
37.7
30.6
6.9
13.4
53.4
41.5
0.8
20.6
65.0
21.7
2.4
-4.5
60.0
-7.7
3.8
1.6
2.1
3.6
2.2
5.4
3.0
5.7
3.6
4.1
5.2
3.3
3.2
2.0
2.7
4.2
6.4
3.5
4.7
2.7
2.6
1.4
2.6
3.2
5.7
3.9
5.1
3.1
3.0
2.3
2.9
3.3
5.5
3.3
4.5
2.5
2.4
1.9
2.4
2.4
4.6
Global Conditions
World Trade Volume
Consumer Prices
G-7 Countries a,b
United States
Commodity Prices (USD terms)
Non-oil commodities
Oil Price (US$ per barrel) c
Oil price (percent change)
Manufactures unit export value d
Interest Rates
$, 6-month (percent)
€, 6-month (percent)
Real GDP growth
e
World
Memo item: World (PPP weights)
High income
OECD Countries
Euro Area
Japan
United States
Non-OECD countries
f
Source: World Bank
8
Real GDP Growth in 2007
will be at around 4.6%
 Lower inflation and interest rates
help increase household
consumption growth
 Public investments disbursed as
planned
Real GDP Growth (1988 Prices)
14
2005p
12.2
12
 Lower farm income growth
support HH consumption growth
less than this year
2007p
11.2
9.4
10
8.7
7.9
Percent
 High oil price, higher real interest
rates, real appreciation, policy
uncertainties does not support
private investment growth
2006e
11.9
8
6.0
6
4.4
4
4.6
4.1
5.0
6.0
5.4
4.5
4.3
3.9
2
6.0
4.5
4.6
3.2
1.1
0
Priv C
Gov C
Priv I
Pub I
Export
Import
GDP
 Slowing down of global demand,
GSP expiration & real appreciation
affects exports
9
Public investment would accelerate but
mega project disbursement delayed
 Public investments would accelerate as disbursements
will be made for whole year
 FY2007 Central Government investment budget increase by 11%
 FY2007 SOE approved investment budget for increased by 4.5%
 Mega project investment next year will be less than
planned
Mega Project Investments
Planned
Estimated disbursement*
2005
42.7
35.0
2006
290.0
99.0
2007
506.1
140.0
2008
514.5
165.0
(Billion Bt)
2009
450.9
139.0
Total
1804.2
578.0
* Source: Public Expenditure Review (OPDC), March 2006
Note: Mega project spending in 2005 is about 7% of total public investment and
estimated to be about 16% of total public investment in 2005-2007
10
Private investment next year unlikely
grow much faster than in 2006
…. as manufacturing output decelerated from slow down in
exports, while firms continue to adjust to high oil price
Growths of Private Investment, Manufacturing
Production, and Capacity Utilization
20
25
18
20
15
10
5
0
2002
2003
2004
2005
H1 2006
electricity prices (Baht per kWh)
Diesel HSD (Baht per litre)
Fuel oil (Baht per litre)
Weighted average(Baht per equivalent unit)
Source: EPPO and MEA
76
74
16
14
72
12
10
70
8
Percent
30
Annaul Percentage Change
Baht per unit
Energy prices used by firm
68
6
4
66
2
0
64
H1 2003 H1 2004 H1 2005 H1 2006
Private Investment Growth (LHS)
M anufacturing Production Growth (LHS)
Capacity Utilization (RHS)
Source: BOT and NESDB
11
Private investment will unlikely grow
much faster than in 2006
… as real interest rates rise
and real exchange rate appreciate
Real Interest Rates (PPI adjusted)
Real Effective Exchange Rate
10
100
8
95
Index (1994=100)
Percent
6
4
2
0
-2
90
85
80
75
-4
Source: BOT
Source: BOT
9M 2006
2005
2004
2003
2002
2001
2000
70
1999
2003
2004
2005
9M 2006
Lending rate
Inflation PPI
Real interest rate
1998
2002
12
Private investment will unlikely grow
much faster than in 2006
… as constraints to investments have not been addressed
Top 3 constraints to doing business and expansion in
2004 as reported by 1,385 firms in Thailand
Regulatory Burden
Skilled Labor Shortage
Infrastructure and
Support Services
0
10
20
30
40
50
60
70
Percent of Firms Identifying Issues as One of Three Top Obstacles
Source: Thailand PICS 2005
13
Private investment will unlikely grow
much faster than in 2006
… as investors sentiments have not recovered much
Business Sentiment Index Survey of
568 Large and Medium-size firms
Business Sentiment Index
52
50
48
46
44
42
40
Jul
Apr
2006Jan
Oct
Jul
Apr
2005Jan
Oct
Jul
Apr
2004Jan
38
Index = 50 indicates that business sentiment remains stable
Index > 50 indicates that business sentiment has improved.
Index < 50 indicates that business sentiment has worsened.
Source: BOT
14
Private investment next year will
unlikely grow much faster than in 2006
… as investors esp. FDI wait-and-see amidst
uncertainties in policies and external demand
BOI Net Applications by Sectors
JETRO’s Business Sentiment Survey of
Japanese companies in Thailand
(Billion Bt)
40
Total Net Applications
Agriculture
2003
304.7
34.2
2004
637.2
53.1
2005
685.6
39.7
2005
(JanOct)
630.9
31.7
Mining, ceramics and base metal
19.9
157.7
130
129.0
28.1
Light industry
17.8
12.2
14.7
12.3
14.4
Metal products, machinery and transport equipment
60.5
57.4
145.1
135.1
47.1
Electronics and electrical appliance
62.8
82.6
86.4
77.1
60.6
Chemical, paper and plastic
56
116
110.1
100.3
141.4
Services and infrastructure
53.6
158.1
159.6
145.5
95.8
Net applications by foreign firms and joint ventures
243.6
340.4
531.1
496.2
260.4
30
20
10
0
-10
-20
2006
(JanOct)
424.8
37.4
Source: JETRO
Oct(Outlook)
Jul
Sep
May
Mar
Nov
2006Jan
Sep
Jul
May
Mar
Nov
2005Jan
Sep
Jul
Mar
May
2004Jan
-30
Investors have been more cautious
since last year
15
As exports slow and imports increase,
current account will fall
Trade and Current Account Balance
8
8
6
6
4
2
2
0
-2
0
-2
-4
-4
-6
-8
-6
-10
-8
2003
Trade account is in greater
deficit, and Current
account decline to almost
zero
% of GDP
Imports rise with pick up
in investment and
rebuilding of stocks
10
4
US$ Billion
Export falls with slow
down in global demand,
GSP expiration and real
appreciation
2004
2005
2006p 2007p
Current Account
T rade Account
Current Account (% of GDP)
T rade Account (% of GDP)
16
GDP Growth in 2007 will be 4.6%
… as domestic demand accelerates, but
foreign demand decelerates
Real GDP Growth (1988 Prices)
14
2005p
12.2
2006e
2007p
11.9
12
11.2
9.4
10
8.7
Percent
7.9
8
6.0
6
4.4
4
4.6
4.1
5.0
6.0
5.4
4.5
4.3
3.9
2
6.0
4.5
4.6
3.2
1.1
0
Priv C
Gov C
Priv I
Pub I
Export
Import
GDP
17
III. Going forward:
Agenda for a balanced and quality growth
Supply side constraints must be relaxed for growth to be
sustained as capacity utilization close to pre-crisis levels
Private Investment Growth and
Share in GDP
Capacity Utilization (%)
80
78
76
74
72
70
1995-1996 Average
Excess Capacity
9M 2006
2005
2004
2003
2002
2001
2000
1999
68
66
64
62
60
58
Source: NESDB
Source: BOT
NOTE: 1980s share in GDP was 22%
Greater investments needed to relax the constraints
18
III. Going forward:
Agenda for a balanced and quality growth
But firms are finding it difficult to expand in an
environment of
 High oil prices – a new factor that has raised
production costs & reduce firm’s margin
 Intensified export competition in both labor &
technology intensive goods from China & other
middle-income countries, which have rapidly
improved human capital and firm/university R&D
19
III. Going Forward:
Agenda for a balanced and quality growth
What will help promote both investments
and productivity of firms?
1) Relax regulations, skills and infrastructure constraints
which firms identified as major constraints to their
investments & productivity
2) Innovation/knowledge critical for raising productivity will
be key
3) More efficient services sector – financial, telecom, ICT,
logistics, and business services
These would help lower operations costs for firms
and increase demand for Thai products
20
III. Going Forward:
Agenda for a balanced and quality growth
(1) Reforms badly needed to improve the investment
climate
– Improvements in skills of workforce (secondary &
vocational education, IT and English skills)
– Regulatory burden (reducing processes, streamlining
procedures, ensure predictability of time taken for
service delivery, ensuring competition)
– Relaxation of price controls
21
Price Controls – How severe are they?
2 lists of product and services that Min of Commerce enforces varying
degrees of price control
• Controlled list (35 products and services)
• Monitored list (200 products and services) – accounts for roughly 50% of
manufacturing sector value added
• Accounts for < 20% of CPI basket
Impact of price control on firms
Total Factor Productively (TFP)
and Price Dispersion in Thailand, 2004
 Reduces margins of firms
 In latest Business sentiment index
survey (BoT), firms report inability
to adjust prices as one of top 3
constraint to doing business
 Firms productivity declines
Source: Ariyapruchya et al (2006)
Note: Each point represents a firm
22
III. Going Forward:
Agenda for a balanced and quality growth
Knowledge Economy Index (0-10)
E as t As ia
H ong Kong
S in g a p o r e
T a iw a n
K o re a
M a la y s ia
T h a ila n d
P h ilip p in e s
C h in a
I n d o n e s ia
V ie t n a m
1995
2004/05
4.33
7 .2 0
7 .4 2
6 .3 7
5 .8 7
4 .7 9
4 .2 6
2 .9 9
2 .6 7
2 .3 4
1 .4 9
6.04
7 .6 8
8 .2 4
8 .1 0
7 .4 8
5 .5 7
4 .7 6
4 .2 5
4 .1 2
2 .9 6
2 .9 2
Source: World Bank
Knowledge Economy Index covers 4 pillars of a
knowledge economy:
1. Economic incentive regime 2. Innovation
3. Education 4. ICT
(2) Actions needed to move
Thailand towards a
knowledge economy
– Increasing S&T graduates
– Promoting R&D in firms
– Creating universitybusiness linkages
– Strengthening role of
public research institutes
(e.g. NSTDA)
23
III. Going Forward:
Agenda for a balanced and quality growth
(3) Actions needed to increase efficiency in services
sector
(45% of GDP, key supporter of industrial sector,
large employment and large share of SMEs)
• Enact laws that will help promote services
businesses e.g. Secured Transactions Act
• Ensuring fair competition
24
III. Going Forward:
Agenda for a balanced and quality growth
Growth must be more evenly distributed
• Income distribution must be more even
• Fight against poverty must continue with improved
targeting of the poor
Poverty Map of the Northeast Region, 2004
Average Per Capita Real Consumption
(Baht/Month)
1st Poorest Quintile
2nd Quintile
3rd Quintile
4th Quintile
5th Richest Quintile
2000
955
1,578
2,294
3,449
7,845
2002
1,063
1,724
2,467
3,638
8,205
2004
1,155
1,891
2,726
4,040
9,558
Source: WB Computation from SES data
Source: NSO
25
Summary of Key Messages
 Real GDP growth this year will around 4.5% supported
by exports
 Real GDP Growth next year will speed up slightly to
4.6% as exports slow down and private investment
recovery will be slow
 Supply constraints needs to be relaxed if Thailand’s
growth is to be sustained
 Future investments must come with higher productivity
(quality) for Thailand to be competitive
 Distribution of growth especially to the poorest must be
ensured
26