Pace Development has set aside a marketing budget of Bt200 million to boost presales of its MahaNakhon Square project to 40 per cent by the middle of the year, having seen demand from Hong Kong, Singapore and the UK return to Thailand’s luxury market.
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Pace targets Mahanakhon Square presale of 40 %
Public investment will expand only slightly next year as the Thai Kem Kaeng Program will just about compensate for the reduction in the government’s on-budget investment in 2010.
The medium-term outlook is sobering, with growth expected at 3.5 percent in 2010 and likely remaining below potential for the next three years. Because the Thai economy is largely dependent on final demand in advanced economies, a return to pre-crisis rates of economic growth (a full recovery vs. a rebound to pre-crisis levels) will require a combination of (a recovery of demand from advanced economies and a rebalancing of the sources of growth to reduce Thailand’s dependence on demand from advanced economies. Neither process is likely to be swift.
Recovery from a financial crisis is a lengthy process that involves the rebuilding of balance sheets, and the IMF estimates that half of the losses in the financial system in advanced economies are yet to be recognized.
Automotive exports – the second largest item in the country?s exports after electronics – fell sharply early this year by about 45 percent from a year before. (During 2009, exports slumped through May before rebounding in the third quarter, although data of late suggest some leveling off of foreign demand.) Compared with electronics, automotive exports are half as large in value but have twice as large value-added per unit of output, leaving the contributions of both sectors to GDP about equal.
Fiscal stimulus in China offset the decline in Thailand’s exports and is playing a role in the region’s rebound
The key risk to the global recovery lies in the need to get the timing of withdrawing fiscal and monetary stimulus just right. Withdrawal of fiscal stimulus too early may lead to another negative demand shock and a negative expectations spiral, whereas withdrawing the stimulus too late may lead to high inflation, further weakening of the US dollar, and possible asset price bubbles. In Thailand, for example, more than ten years since the 1997/1998 financial crisis banks still have bad loans in their books and the government still holds a large amount of debt related to the recapitalization of financial institutions. Given the expected length of recovery, it is important not to withdraw stimulus programs too soon, before the recovery is on a firm footing. On the other hand, macroeconomic imbalances are accumulating and eventually fiscal and monetary authorities, especially in the US, must consolidate their fiscal position and withdraw liquidity.
Despite the rebound, Thailand’s export recovery is still subject to several downside risks. A recent export pickup in East Asia benefits mainly from coordinated and massive policy responses in G-3 economies and China that have boosted their demand for imports, and inventory re-stocking worldwide that followed a swift and large de-stocking in early-2009 as orders fell less than production. These two factors are temporary, as governments have to unwind injections to maintain fiscal discipline and companies resume their normal stocking levels. In fact, data shows that US inventory-to-shipment ratios for computers, electronic products, and electronic appliances started to rise again in August and September, thus leading to weaker new orders . This likely adds pressure on Thailand’s electronic shipments to the US in the coming months.