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Thailand’s economy could be at test in 2011

While many developed countries are still bemoaning the pace of their recovery, Thailand’s export-led economy is growing at an impressive clip. Last year, export growth was over 28 per cent, and the number of foreign visitors to the country grew 12 per cent. Meanwhile, private investment was up more than 13 per cent, while domestic consumption increased nearly 5 per cent.

Boris Sullivan

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While many developed countries are still bemoaning the pace of their recovery, Thailand’s export-led economy is growing at an impressive clip. Last year, export growth was over 28 per cent, and the number of foreign visitors to the country grew 12 per cent. Meanwhile, private investment was up more than 13 per cent, while domestic consumption increased nearly 5 per cent.

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Granted, the country suffered a brief recession last year, with the economy shrinking 0.6 per cent in the second quarter and 0.3 per cent in the third quarter, but the strong export growth helped the economy to reverse course and grow 1.2 per cent in the last three months of last year.

That meant that for all of last year, the GDP of South East Asia’s second-largest economy grew by 7.8 per cent, a strong performance within the region and a figure that the US and European countries can only dream about.

interest rates graph thailand BOT

The Bank of Thailand said surging oil and commodity prices had aggravated inflationary pressures

The surge in oil and commodity prices has resulted in increased inflationary pressure compared to the previous MPC meeting. Nevertheless, the MPC assessed that gradual normalization of the policy rate remains appropriate for anchoring inflationary expectations and reducing the risk of financial imbalances in the economy. The MPC therefore decided unanimously to raise the policy interest rate by 0.25 per cent, from 2.25 to 2.50 per cent, effective immediately. The MPC will, however, closely monitor inflationary pressure going forward and stands ready to take necessary action.

Considering that political turmoil on the streets of Bangkok in April and May last year left 91 people dead, Thailand’s economic strength is even more remarkable. During the upheaval, the army moved into the city twice to clear anti-government protesters demanding the resignation of the prime minister, Abhisit Vejjajiva.

However, while tourism in the capital took a temporary hit, Thailand’s exports and personal consumption grew throughout the unrest. Nor has economic growth been affected by ongoing instability on three of the country’s borders. Just last month, clashes between Thai and Cambodian forces on the country’s eastern border left eight Cambodian soldiers and three Thais dead.

via Thailand’s impressive economy could be in for a serious test this year – The National.

In recent decades, Thailand has been a major destination for foreign direct investment, and hundreds of U.S. companies have invested here successfully. Thailand continues to welcome investment from all countries and seeks to avoid dependence on any one country as a source of investment.

In 2009, most investors remained cautiously hopeful that the political situation would become less tumultuous and allow the government to pursue more business-friendly policies. Unfortunately, the November 2008 closure of Bangkok’s airports, widely watched political protests in April, and the onset of the global economic crisis made it difficult for Prime Minister Abhisit to restore the business and investor confidence in Thailand’s economy after several years of political turmoil.

By the end of the year, the dominant issues with regard to Thailand’s investment climate revolved around the court-ordered shutdown of 65 construction projects at Map Ta Phut, one of Thailand’s most important industrial estates, over allegations that the government failed to follow the 2007 Constitution’s requirements for environmental and health impact assessments when approving the new industrial projects. However, implementing legislation for these constitutional provisions had never been finalized — a significant legal quandary that the government hopes to resolve in 2010. The affected companies, including many major foreign investors, remain concerned about how and when the dispute will be resolved.

After posting 4.8 percent growth (year-on-year) in the first nine months of 2008, the Thai economy dropped 4.2 percent in the last quarter — the first contraction of the economy since the 1997-98 Asian Financial Crisis. The global financial crisis of 2008 and the continued political tension in Thailand led to a 2.6 percent drop in GDP in 2008, much lower than the 5 percent average growth of recent years.

This slippage continued in 2009, with the economy contracting by 5 percent (year-on-year) through September. The hardest hit sectors were exports and private investment, both of which represent around 80 percent of GDP. As the global markets recover from the recessions, the Thai government revised its projections for 2009 to negative 3 percent, with a turnaround in the last quarter of 2009. The government estimates GDP growth of 3 to 4 percent in 2010.

Investment Climate in Thailand

 

 

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Olivier Languepin and Asian Development Bank

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