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Thailand
Economic Monitor
December 2008 Issue
Press Release
10 December 2008
World Bank, Bangkok Office
Presentation Today
1.
Global impact of global financial crisis
2.
Impact on Thailand, 2008 and 2009
3.
What can we do to mitigate the impact
and ensure sustained growth?
2
1. Global impact of
global financial crisis
3
Consequences of the global financial crisis…

Real GDP growth will fall across the world
2007e
2008f
2009f
Real GDP growth (%) a/
World
High-income economies
US
Euro Area
Japan
Developing economies
East Asia and Pacific
China
3.7
2.6
2.0
2.6
2.1
7.9
10.5
11.9
2.5
1.3
1.4
1.1
0.5
6.3
8.5
9.4
0.9
-0.1
-0.5
-0.6
-0.1
4.5
6.7
7.5
World Trade volume (%)
7.5
6.2
-2.1
71.1
17.0
101.2
22.4
74.5
-23.2
Manufactures unit export value c/
5.5
9.0
2.1
Consumer prices
G-7 countries
US
1.7
2.6
3.3
4.5
1.6
2.5
Interest rates
$, 6-month (%)
€, 6-month (%)
5.3
4.3
3.3
4.9
1.9
3.8
Oil price (USD/barrel) b/
Non-oil commodity price (%)
Source: World Bank (DECPG, December 2008)
Note: a/ GDP in 2000 constant dollars; 2000 prices and market exchange rates
b/ Simple average of Dubai, Brent and West Texas Intermediate
c/ Unit value index of manufactured exports from major economies in US dollars
4
Consequences of the global financial crisis…

Global liquidity will be tight, and banks will be much
more careful in lending

Monetary policy will ease around the world, but bank
interest rates may not decline as much

Lower global inflation

Equity markets will be down

Currencies weaken, but movements will not be as
volatile as before
5
2. Impact of global financial crisis on
Thailand, 2008 and 2009
6
Immediate financial impact high, but less
than regional peers
Thailand 5-year Credit Default Swaps
20
600
Closure of airports
basis points
0
500
-20
400
Sep 15th, Lehman
declares
bankruptcy
-40
300
-60
200
-80
100
Thailand minus regional peers (left axis)
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
0
Apr-08
-100
Thailand CDS Rate (right axis)
Regional peers: China, Malaysia, Philippines and Korea. Lower values denote improvements.
Source: World Bank
7
Immediate financial impact high, but less
than regional peers
THB Exchange Rate Performance
4%
Closure of airports
Change since September 15, 2008
2%
0%
THB vs. USD
-2%
THB vs. SEA Currency Basket
-4%
-6%
Sep 15th, Lehman
declares
bankruptcy
-8%
1-Dec-08
24-Nov-08
17-Nov-08
10-Nov-08
3-Nov-08
27-Oct-08
20-Oct-08
13-Oct-08
6-Oct-08
29-Sep-08
22-Sep-08
15-Sep-08
-10%
Regional currency basket includes China, Malaysia, Indonesia, Philippines, Hong Kong, Singapore and
Korea.
Increases denote (relative) depreciations.
Source: BOT and World Bank
8
Immediate financial impact high, but less
than regional peers
Equity Market Performance
10%
0%
Closure of airports
YTD Change
-10%
-20%
-30%
SET Index
-40%
SEA Basket
Sep 15th, Lehman
declares
bankruptcy
-50%
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
-60%
Source: SET and World Bank
9
In the short-run, Thailand’s external
vulnerability is not large

Thailand has de-leveraged since the 1998 economic crisis

International reserves have built up to over US$100 billion

Remaining foreign investment in stock market ~US$3.3 billion
Reserves and Balance of Payments (BOP)
40
30
20
Source: BOT
Jun 08
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
2007p
10
Int'l reserves / ST debt (right)
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
25
Int'l reserves (left)
100
20
BoP (right)
80
15
60
10
Billion USD
50
External ST Debt (left)
120
times
Short-term external debt
Billion USD
$ bn
60
40
5
20
0
0
2004
2005
2006
2007p
10M 2008
Source: BOT
10
In the short-run, Thailand’s external
vulnerability is not large

Thai banking system remains sound, but needs to be
closely monitored

Investment in foreign debt instruments = 13% of total debtinstrument holdings

Foreign investments < 2% of total assets

Foreign banks account for only 12% of the Thai market

Net NPLs = 3.3% of total loans in 2008Q3, compared to 4.4% in
2007Q3

Loan-to-deposit ratio is around 91%

Bank of Thailand can inject additional liquidity, if needed
11
But impact already felt on real sector,
particularly, exports
...Exports grew only by 5.2% in October, the slowest since 2002
Some key products and markets
Export Growth
experiencing a large drop in October 2008
(% year-on-year)
(% year-on-year)
Share in
10M 08
(%)
80
Overall exports
Agriculture
Manufacturing
70
60
Percent
50
40
30
20
10
-10
Jan 2006
Feb
Mar
Apr
May
Jun
Jul 2006
Aug
Sep
Oct
Nov
Dec
Jan 2007
Feb
Mar
Apr
May
Jun
Jul 2007
Aug
Sep
Oct
Nov
Dec
Jan 2008
Feb
Mar
Apr
May
Jun
Jul 2008
Aug
Sep
Oct
0
Source: BOT and MOC
Products
Computers
Plastics products
Integrated circuits
Passenger cars
Air conditioners
Televisions
Markets
Singapore
Hong Kong
Vietnam
Philippines
Taiwan
2008Q3
Oct 2008
7.6
4.8
3.4
2.3
2.0
0.9
11.7
14.7
-14.3
26.2
-4.4
34.4
-7.7
-13.6
-26.6
-9.3
-12.1
-13.1
5.8
5.6
2.9
1.9
1.6
22.4
9.4
51.6
27.8
-4.2
-27.9
-20.5
-6.5
-17.6
-22.6
Source: MOC
12
Exports will likely expand by 19.5% in 2008…
… after growing robustly by 23% in the first 10 months, mainly to
ASEAN & new markets
Export growth rates in
selected East Asian economies (% YoY)
Contribution to export growth by markets
(%), 10M 2006-10M 2008
35
10M 06
10M 07
30
Singapore
25
M alaysia
20
Percent
9M 08
October 2008
Taiwan
10M 08
Indonesia
15
Thailand
10
Korea
5
China
0
Japan
-5
Source: BOT
US
EU
ASEAN
China
Middle
East
Others
-10
-5
0
5
10
15
Percent
20
25
30
Source: World Bank and national authorities
13
Next year, exports will only expand by 8%
as global economy slows sharply
World’s Real GDP Growth (%) and
Share of Thai Exports
World
US
Japan
Euro Area
East Asia
China
South Asia
Market
share (%) 2006
100.0
4.0
12.6
2.8
11.8
2.4
9.9
2.9
44.9 10.1
9.8 11.6
2.9
9.0
2007 2008f
3.7
2.5
2.0
1.4
2.1
0.5
2.6
1.1
10.5
8.5
11.9
9.4
8.4
6.3
2009f
0.9
-0.5
-0.1
-0.6
6.7
7.5
5.4
Source: Ministry of Commerce and World Bank forecasts (DECPG, December 2008)
Note: 1. Market share is in 2007.
2. East Asia refers to East Asia and the Pacific, which includes Japan and China
14
Export products with primary destinations to
the US, EU, and Japan will be badly affected
…They are automotive parts and components, jewellery, food
items, and electronic integrated circuits
Some top export products and major markets
HS
8471
8542
4001
1006
8473
8415
8803
8708
7113
1604
4011
1602
0306
1605
8525
2008
Product
Market share (%) →
Computers
Eletronic integrated circuits
Natural rubber plates, sheets or strip
Rice
Parts and accessories of computers
Air conditioning machines
Parts of aircrafts
Parts and accessories of motor vehicles
Jewellery and parts
Prepared or preserved fish
New pneumatic (rubber) tyres
Other prepared or preserved meat
Crustaceans: live, fresh, chilled, frozen
Crustaceans, molluscs
Transmission apparatus for radios or TV
Fruit, nuts and other edible parts of plants
US EU-15 Japan China ASEAN
12.0 12.3 11.6 9.6
22.2
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Product share (%) ↓
7.9
4.5
3.9
3.0
2.0
2.0
0.9
2.3
1.5
1.3
1.0
0.9
0.8
0.8
0.7
0.5
Source: BOT
and MOC
15
Exports of services, particularly, tourism
receipts will also be adversely affected by global
crisis & political unrest
Monthly tourist Arrival growth,
year-on year
Tourist arrival by nationality
20
100%
15
10
80%
percent
5
60%
0
-5
40%
-10
20%
-15
Source: Bank of Thailand
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
-20
0%
2005
Europe
China
2006
ASEAN
US
Others
Australia
2007
Japan
Middle East
Source: Tourism Authority of Thailand
16
Private investment growth will not be strong
next year
Bank loan growth will be lower as banks will be more
risk averse (more concerned on credit quality)
Growth of Commercial Bank Credit to Businesses
12
Total Credits to Businesses
10
Loans to Businesses
8
Percent
6
4
2
0
-2
Q3-2008
Q2-2008
Q1-2008
Q4-2007
Q3-2007
Q2-2007
Q1-2007
Q4-2006
Q3-2006
Q2-2006
-4
Q1-2006

Source: Bank of Thailand
17
Private investment growth will not be strong
Business sentiment index, 2008
55
BOI Approvals
745
800
Business Sentiment Index
Expected BSI
700
601
600
Billion Bt
50
45
583
571
500
400
373
332
284
300
200
100
40
0
2003
2004
35
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2008
> 10% Foreign equity
2005
2006
2007
JanOct
2007
JanOct
2008
90-100% Domestic equity
Source: BOI
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
18
FDI will continue to be sluggish as major
investors are hit by global financial crisis
Gross FDI Inflows
Origin of FDI inflows
40
100%
35
Billion USD
30
80%
25
60%
20
15
40%
10
20%
5
0%
0
2005
2004
2005
Source: Bank of Thailand
2006
2007
9M 07
9M 08
Japan
2006
US
EU (15)
Singapore
2007
Others
Source: Bank of Thailand
19
Balance of payments will turn negative next
year
…but reserves to remain at comfortable levels
Balance of Payments
Balance of Payments, 2008
Million US$
10
2008p
2009p
150,048
179,307
193,652
17.3
19.5
8.0
-138,476
-181,404
-194,102
9.1
31.0
7.0
11,572
-2,096
-450
4.7
-0.8
-0.2
2,477
-400.0
-480.0
87.5
-116.1
-20.0
14,049
-2,496
-930
5.7
-0.9
-0.3
3,053
18,504
0
1.2
6.7
0.0
Balance of payments
17,102
21,000
-930
Foreign Reserves (year-end)
87,455
108,455
107,525
Exports of Goods
Current Acct
8
(% change)
Capital Acct
6
Billion US$
2007
Imports of Goods
Balance of payments
(% change)
4
Trade Account
2
as % GDP
Net services income & transfers
0
(% change)
-2
Current Account
-4
as % GDP
-6
Jan
Feb
Source: BOT
M ar Apr M ay
Jun
Jul
Aug
Sep
Oct
Capital and financial account
including net errors and
ommissions
as % GDP
Source: BOT & WB projections
20
Household consumption will likely continue to
be dampened



Consumer confidence declines
Real wage increase small
Farm income growth down with lower agricultural prices
Consumer confidence index
Farm Income Growth
50
100
45
95
90
40
Farm price growth
35
Farm income growth
30
Percent
85
80
25
20
15
75
10
5
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
70
Source: UTCC
0
2006
2007
10M 2008
Source: BOT
21
Falling oil prices, raw material prices, and
inflation are good news
Crude Oil Prices ($/barrel)
Inflation
10
160
9
Year-on-year Change (percent)
140
100
80
60
40
Headline
Inflation
7
6
Inflation
Target: 3.5%
5
4
3
2.2
2
2.0
1
0
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0
Prices for 2009-2011 are traded futures prices.
Sources: US Energy Information Administration (spot prices)
TradingCharts.com (futures prices)
Core Inflation
Jul-2007
Sep-2007
Nov-2007
Jan-2008
Mar-2008
May-2008
Jul-2008
Sep-2008
Nov-2008
20
Jan-2006
Mar-2006
May-2006
Jul-2006
Sep-2006
Nov-2006
Jan-2007
Mar-2007
May-2007
US$ per Barrel
120
8
Source: MOC and BOT
22
Real GDP growth is estimated at 3.9% for
this year and at 2% for next year
Real GDP Growth, 2007-2009
Share in
2007 GDP
2007
2008p
Q1
Q2
Q3
Q4p
2009p
61.1
2.7
1.9
2.3
1.6
1.7
2.0
2.9
51.9
1.5
2.5
2.7
2.5
2.6
2.3
2.0
9.2
10.8
-1.9
-0.4
-3.7
-2.9
0.0
8.0
22.4
1.4
2.6
5.4
1.9
0.6
2.3
2.6
Private Investment
16.6
0.5
4.3
6.5
4.3
3.5
3.0
2.2
Public Investment
5.8
4.0
-2.6
1.9
-5.2
-5.5
0.0
4.0
Total Domestic Demand
83.5
2.1
3.7
6.5
3.0
4.6
0.8
2.2
Exports
69.7
7.1
6.9
8.2
9.1
8.2
2.4
2.0
Goods
56.8
7.2
7.3
7.5
9.8
9.0
3.0
3.2
Services
12.9
6.7
5.3
11.1
5.8
4.5
0.0
-3.0
53.8
3.5
7.3
9.4
6.9
10.5
2.8
2.3
Goods
43.5
1.6
7.1
10.0
5.4
9.4
3.5
2.8
Services
10.3
12.5
8.6
6.9
14.0
15.3
0.0
0.0
15.9
21.2
5.3
4.6
18.3
0.3
1.2
1.2
100.0
4.8
3.9
6.0
5.3
4.0
0.8
2.0
Total Consumption
Private C
Gov C
Gross fixed capital formation
Imports
Net Foreign Demand
GDP
Source: NESDB & projections by World Bank
23
Slow down in businesses will affect employment
of low income groups
Employment by Industry, October 2008
(Million persons)
Change
from Share of
Oct
07 Total (%)
Oct 2008
INDUSTRY
TOTAL
Proportion of the Poor Household
Classified by Economic Activities, 2007
37.16
1.06
100.0
1. Agriculture
13.98
0.56
37.6
Economically
Farm operator,
2. Non-Agriculture
23.18
0.50
62.4
Inactiv e
mainly ow ning
2.1 Manufacturing
5.88
-0.28
15.8
household
land
2.2 Construction
2.3 Wholesale and retail trade,
repair of motor vehicles
motorcycles and personal
household goods
2.42
0.18
6.5
22.1%
29.9%
5.92
0.42
15.9
2.4 Hotels and restaurants
2.43
-0.04
6.5
2.5 Transportation,
communication, and storage
1.19
-0.07
3.2
2.6 Real estate, renting and
business activities
0.75
0.03
2.0
Manufacturing
10.6%
Farm operator,
mainly renting
Other
land
employ ee
7.2%
4.6%
Professional,
General w orker
2.7 Public administration and
defence, compulsory social
security
1.25
0.04
3.4
2.8 Education
1.09
0.11
2.9
2.9 Others
2.25
0.11
6.1
1.5%
technical &
Entrepreneur,
Fishing,
Farm w orker
managerial
trade, industry
forestry
7.0%
0.8%
9.3%
7.2%
Source: NESDB
Source: NSO
24
3.3.
What can we do to mitigate the
impact and ensure sustained growth?
25
Short term measures

Provide safety nets for the unemployed, poor, and vulnerable

Provide credit extension to SMEs
 The government has implemented 3 fiscal packages to mitigate
the impact of the rise in food and fuel prices in the first half of
the year (tax cut, price subsidy, credit and grant extension)
 The October package aims to mitigate the impact of global
financial crisis to the capital market and ensure that SFIs
extend credit to SMEs
 Additional Bt100,000 billion budget deficit proposed
26
There must be balance between the shortterm and medium-term impact

Fiscal stimulus important for

Short-term impact to protect vulnerable groups and
SMEs from financial crisis
– but could improve targeting

Medium to long-term impact to ensure that Thailand’s
competitiveness is maintained and Thailand can jump
on band-wagon of global recovery in the next few
years
27
Turning a crisis into opportunity...

World economy are projected to start to recover
from financial crisis in 2011/12

We should take this opportunity to strengthen
Thailand’s competitiveness and poise for a jump
in growth as world economy rebounds
28
Key to Thailand’s sustained growth is
investments by the private sector
Private Investment growth, and Capacity Utilization
78
Capacity utilization rate (right)
76
74
15
72
10
Percent
Percent
20
Real private investment growth (left)
70
68
5
66
0
64
2004
2005
2006
2007
2008
Source: BOT and NESDB
29
Thailand needs to overcome constraints to
investment and productivity improvements
Top Constraints to Business and Investments (2007)
(Percent of 1,043 firms in 9 manufacturing industries surveyed)
Macroeconomic
uncertainty and access
to finance
40.6
35.8
Skilled labor shortage
21.7
Regulatory burden
Inadequate &
unreliable
infrastrcuture services
12.5
0
5
10
15
20
25
30
35
40
45
Percent
Source: Thailand Productivity and Investment Climate Study 2007 (PICS 2007), World Bank,
NESDB and Foundation of Thailand Productivity Institute
30
Firms need to protect themselves against
macroeconomic volatility…
Percentage of Firms Used These Methods to Deal with
Macroeconomic Uncertainties
60%
50%
40%
30%
20%
10%
All
Small
Medium
No measure
taken
Investing
abroad
Pricing in
different
currency
Financial
hedging
instrument
Long term
contract
Finding new
suppliers
Productivity
improvement
0%
Large
Source: PICS 2007
31
… through acquiring more knowledge
Firms Reporting Not Undertaking any Measure vs. the Lack of
Knowledge on Coping Measures
(Percent of firms)
50%
45%
Electrical Appliance
Lack of knowledge
40%
35%
Furniture & Wood
Product
30%
25%
Garment
Small
Food
Processing
Medium
20%
Textile
Domestic
Electronic
Component
15%
Large
10%
Auto
parts
Rubber &
Plastics
Machinery &
Equipment
Foreign
5%
0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
No measure taken
Source: PICS 2007
32
Skills & knowledge need to be improved to
move Thailand towards a knowledge economy
…But Thailand has not made much progress on this
World Bank’s Knowledge Economy Index*
Rank
in 2008
Change in
rank from
1995
Country
1
0
Denmark
17
7
Taiwan (China)
19
-2
21
0
26
-3
Hong Kong (China)
31
-3
Korea
46
1
55
11
63
-10
77
18
93
3
96
12
100
4
Japan
Singapore
Malaysia
Brazil
Thailand
China
Indonesia
Vietnam
India
* KEI is a simple average of 4 sub-indexes which represents
the 4 pillars of the knowledge economy: (1) economic
incentive and institutional regime, (2) education and training,
(3) innovation and technological adoption, and (4) information
and communications technologies (ICT) infrastructure.
Source: World Bank
33
Public infrastructure investments are needed
to reduce logistics and production costs
Share of transport and logistics cost in total
Objective Measures of Thailand's
Infrastructure Services
4%
3%
2%
South
Northeast
North
East
Central
Thailand
0%
Bangkok and
vicinity
1%
Average hours of each
telephone interruption
5%
2004
Yearly number of phone
interruptions
6%
2007
Average hours of each
water interruption
2004
Yearly number of water
interruptions
2007
7%
Production loss due to
power outages (%)
20
18
16
14
12
10
8
6
4
2
0
8%
Yearly number of power
outages
cost of delivering finished goods to customers
Source: PICS 2007
34
Public investment needs to be sped up,
and Thailand has capacity to increase it
Real Public Investment Growth (%)
Fiscal
End FY 2008
sustainability (Sep 2008)
guidelines
Construction
25
Equipment
20
Percent, yoy
Thailand’s Fiscal Sustainability Guidelines (%)
Total Public Investment
15
Public debt to GDP
50
36.3
10
Debt repayments to
central government’s
budget
15
11
Central government
budget deficit to GDP
2.5
0.8
Public debt service to
revenue ratio
15
11
5
0
-5
-10
2005
Source: NESDB
2006
2007
2008 (Q1Q3)
Source: Fiscal Policy Office
35
Summary

2009 will be a challenging year for Thailand

Thailand has high potential to weather this global
financial crisis and turn this crisis into an
opportunity

We all (Government, private sector, academia) need
to work together to unleash Thailand’s potential by
improving Thailand’s investment climate
36
Thank You
Thailand Economic Monitor
will be posted on
www.worldbank.or.th
37