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Thailand
Economic Monitor
April 2006
Press Briefing
7 April 2006
1
Thailand Economic Monitor
Key Messages
 Thailand had strong recovery, growth at 6% during 2002-04 with
GDP per capita & poverty better than pre-crisis levels;
 But slower growth in 2005-2006 due to external shocks & decline
in household consumption growth
 Export growth has been robust driver throughout recovery
 Priv. inv. slow throughout – how to raise priv. inv. & productivity?
 YET, medium term prospects look good – given sound macrosituation, rising openness & infrastructure investment plans
 ONLY IF -- actions to reduce regulations, enhance skills, invest
infrastr. TAKEN to raise investment & innovation, in the face of
high oil-prices, rising interest rates and modest real appreciation.
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Outline of today’s presentation
1. Thai economy in 2005
2. Thai economy in 2006
3. Thailand from a medium term perspective
3
1. Thai economy in 2005
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1. GDP growth slowed to 4.5% in 2005
Real GDP Growth
In 2005,
GDP growth slowed to 4.5%
 Higher energy prices
dampen growth of private
investment & consumption
Softer world demand,
drought, tsunami slowed
export growth to 15%
2004
2005
2006p
5.3
5.4
4.4
Private C
5.9
4.4
4.0
Gov C
4.7
12.2
7.0
13.8
11.3
8.7
Private Investment
16.3
11.2
9.5
Public Investment
6.8
11.7
6.5
Total Domestic Demand
7.8
7.3
5.5
Exports
9.6
4.4
6.8
8.4
4.3
6.0
15.5
4.6
10.0
13.5
9.3
6.6
Goods
12.3
8.9
6.0
Services
20.4
11.6
10.0
-4.1
-16.5
7.4
6.2
4.5
5.0
Total Consumption
Gross fixed capital formation
Goods
Services
Imports
=> Manufacturing production
growth fell (from 11%, to 8%
and to 5.5% in 2003, 04, 05)
Net Foreign Demand
GDP
Source: NESDB and World Bank
5
2. Thai economy in 2006
6
Growth will recover to 5% in 2006 due to
higher export growth & lower imports
Real GDP 1988 Prices
In 2006
GDP growth projected to be
5.0% with downside risks
 Growth come mainly from net
exports (exports accelerate
while imports decelerate)
 Domestic demand dampened
by high oil price, rising real
interest rates, depressed
confidence, and political
uncertainty
2004
2005
2006p
5.3
5.4
4.4
Private C
5.9
4.4
4.0
Gov C
4.7
12.2
7.0
13.8
11.3
8.7
Private Investment
16.3
11.2
9.5
Public Investment
6.8
11.7
6.5
Total Domestic Demand
7.8
7.3
5.5
Exports
9.6
4.4
6.8
8.4
4.3
6.0
15.5
4.6
10.0
13.5
9.3
6.6
Goods
12.3
8.9
6.0
Services
20.4
11.6
10.0
-4.1
-16.5
7.4
6.2
4.5
5.0
Total Consumption
Gross fixed capital formation
Goods
Services
Imports
Net Foreign Demand
GDP
Source: NESDB and World Bank
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Domestic demand growth will fall
further in 2006
In 2006
 Household consumption
growth FALL due to high oil
prices, rising real interest,
rate, low durables demand
Real GDP 1988 Prices
2004
2005
2006p
5.3
5.4
4.4
Private C
5.9
4.4
4.0
Gov C
4.7
12.2
7.0
13.8
11.3
8.7
Private Investment
16.3
11.2
9.5
Public Investment
6.8
11.7
6.5
Total Domestic Demand
7.8
7.3
5.5
Exports
9.6
4.4
6.8
8.4
4.3
6.0
15.5
4.6
10.0
13.5
9.3
6.6
Goods
12.3
8.9
6.0
Services
20.4
11.6
10.0
-4.1
-16.5
7.4
6.2
4.5
5.0
Total Consumption
Gross fixed capital formation
 Manufacturing growth fall
or remain as depressed as
last year, due to oil prices
 Private investment growth
slows down to 9.5 from 11%
Goods
Services
Imports
 Public invest. growth slows
to 6.5% instead of rising
Net Foreign Demand
GDP
8
Higher energy prices reduced
manufacturing growth in 2004 & 05
Real GDP growth and
Growth of manufacturing sector
14
32.8%
12
10
7.6%
8
5%
6
4
Annual percentage change
Baht per crude oil equivalent unit
16
12
12
10
10
8
8
6
6
4
4
2
2
0
0
Annual percentage change
Weighted average of Electricity and
Petroleum Prices used by manufacturers*
2
0
2002
2003
2004
2005
Source: EPPO
Remarks: Petroleum products include Diesel HSD and
Fuel oil. Prices are weighted by their consumption.
2002
2003
Real GDP Growth (LHS)
2004
2005
2006p
Growth of manufacturing sector (RHS)
Source: NESDB
Average retail oil prices are to increase by another 25% this year and
firms will need to adjust => Continues to impact production this year
9
Manufacturing growth for domestic market
slowed MOST in 2005
… As a result of (a) oil-price adjustment by firms and (b) slow down
in Household consumption due to rising oil prices, rising HH
debt, terms of trade decline, and low consumer confidence
HH consumption growth and
Consumer Confidence Index
7
105
6
100
5
95
4
90
3
Index
Annual Percentage Change
Manufacturing Production Index (MPI) growth
classified by export group*
MPI growth
Export < 30% of total
production
30% < Export < 60% of
total production
Export > 60% of total
production
Weight
100.0
2003
13.9
2004
11.5
34.0
15.6
9.8
0.3
30.9
8.6
7.6
4.9
35.1
17.3
17.0
22.6
2005
9.2
85
2
1
80
0
75
2002
CCI (RHS)
2003
2004
2005
HH Consumption Growth (LHS)
Source: NESDB and UTCC
Source: BOT
Remark: * Classified by the ratio of export production to total
production of each industry
This year, HH consumption will continue
to be dampened by high oil price,
increased real interest rate, and
dampened consumer confidence
10
Private investment FALLS
further in 2006
Lower rise in capacity utilization in 2005
Capacity Utilization, 2002-2005
Total Capacity Utilization*
Export less than 30% of total production
Export between 30% to 60% of total production
Export more than 60% of total production
Ave 95/96
2002
2003
2004
2005
76.7
63.6
68.9
70.7
72.6
79.1
65.8
70.2
76.3
76.6
71.8
63.2
68.7
72.5
70.3
76.1
61.3
67.4
63.4
69.0
Source: BOT
Remark: *Accounting for 59.1% of the 2000 manufacturing sector
value added.
Less favorable
environment this year
2006
• High oil price/ slow
manufacturing growth
• Rising interest rate
• Lower public
investment growth
Private investment will not rise quickly this year
11
Public investment growth will slow to
6.5% this year
Because…
 Delays in the implementation of mega-projects that
have been approved
 Delays in submission and approvals of projects for the
remaining of the year due to political uncertainties
 Delays in approval of budget by the Parliament for
next fiscal year
These will negatively affect
private investment growth this year
12
Trade deficits lower, services surplus higher -Current account deficit lower than last year
Trade and Current Account
10
8
8
6
6
4
 Import (goods) value growth will
be significantly lower than last
year’s (Import growth: 2005=26%,
2006=14%)
 Services account surplus higher
as tourism recovers after tsunami
US$ Billion
4
2
2
0
-2
0
-2
-4
% of GDP
 Export (goods) value growth
same last year, but volume higher
(Export growth=15%)
-4
-6
-8
-6
-10
-8
2003
2004
2005
2006p
Current Account
T rade Account
Current Account (% GDP)
T rade Account (%GDP)
Source: BOT and WB estmates
13
3. Thailand from a
medium term perspective
14
Macroeconomic situation has been strong
With low inflation, low real interest rates,
& strong current account
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
Indicators of External Situation
80
Percent
60
40
20
0
2005
2004
2003
2002
2001
2000
1999
1998
1997
2005
2004
2003
2002
2001
2000
1999
1998
1997
-20
1996
Headline Inflation
Real interest rates
Fiscal Balance to GDP
1996
Percent
Real GDP Growth, Inflation, and Real
Interest Rates
Current Account to GDP
Real Exports of Goods and Services to GDP
External Debt to GDP
Debt service to Exports
15
Thailand is committed to
increased openness
… as indicated by increased external trade and
FDI, tariff reforms, FTAs
Indicators of Openness
Gross FDI
160
7
140
6
10
9
8
120
5
80
3
60
2
External Trade to GDP
Ratio (LHS)
Import Tariff Revenues to
Total Imports Ratio (RHS)
40
20
1
2005
2004
2003
2002
2001
2000
1999
0
1998
6
5
4
3
2
1
0
1997
Percent
4
1996
Percent
100
Billions of US$
7
0
Avg
1988/92
2002
2003
2004
2005
16
Impending public investments will help
alleviate infrastructure bottle necks
Firms’ Response on Infrastructure
(Firms Evaluating constraint as “major” or “severe”)
(Percent)
Thailand
North
Central
Bangkok
&
Vicinity
Telecommunications
11.4
6.8
8.8
8.3
18.2
18.3
24.3
Electricity
25.6
21.9
21.6
21.2
37.0
32.4
41.1
Transportation
13.8
13.7
9.5
14.0
15.6
12.7
15.9
East
Northeast
South
Source: Thailand Investment Climate, Firm Competitiveness and Growth Study (2006)
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In the medium term, Thailand must implement
reforms to increase private investment
Private investment rate and/or rate of innovation needs to
be raised for Thailand to sustain high growth rates
Real GDP growth and
Growth of manufacturing sector
Share of PI in Real GDP (LHS)
Growth Rate of PI (RHS)
25
Given
20
20
16
As % of GDP
14
15
12
10
10
8
6
5
4
2
0
0
1980s
2002
2003
2004
2005
2006P
Annual Percentage Change
18
• High oil price
• Rising real interest rates
• Slow down in household
consumption
Reforms to improve the
Investment climate ever more
important for growth and poverty
reduction
18
Services sector potential tapped by
removal of existing restrictions
• WTO agreement can reduce services restrictions;
• Telecom, banking, insurance, business services,
ports can all benefit for such liberalization;
• Share of services sector high
• Productivity growth low- & thus scope to grow
• Supportive policies needed
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Needed Reform Agenda
•
•
•
•
•
Reduce regulatory burden on firms to reduce their transactions
costs, esp. in Center & East – PLUS remove services restrictions
Strengthen vocational education (incl. ICT), generally, & in NE
region to fill skill gaps, and secondary education across the board
Expedite infrastructure improvements, especially in East & Center,
as also for mass transit in Bangkok
More public expenditure in NE, given that it receives less public
resources per capita though NE has most poor people
Promote faster growth in NE by improving trade facilitation &
transport links to integrate with Mekong region, & support crossborder private investments from Thailand to CLMV
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THANK YOU
Thailand Economic Monitor
can be downloaded from
www.worldbank.or.th
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