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2010 Gross domestic product to rise 3.5%

The country’s gross domestic product should rise 3.5 per cent while the government revenue is expected to be more than 200 billion baht for this fiscal year, according to Prime Minister Abhisit Vejjajiva.

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The country’s gross domestic product should rise 3.5 per cent while the government revenue is expected to be more than 200 billion baht for this fiscal year, according to Prime Minister Abhisit Vejjajiva.

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PM: 2010 GDP to rise 3.5%

However, significant downside risks remain should political instability resurface in Thailand and the global decline proved more protracted or steeper than now expected

Inflation has been easing with the slowdown in economic activity and the decline in oil and food prices. After peaking at 9.3 percent in July 2008, 12-month inflation fell to only 0.4 percent in December, although the average for 2009 at 5.5 percent was roughly double the level in 2007. Core inflation averaged 2.3 percent in 2008, within the central bank’s target of 0-3.5 percent. In January and February, prices declined 0.3 percent from the first two months of 2008, but this has been driven primarily by fuel prices, with other prices still increasing year-on-year. Given the increased excess capacity in the economy and the continuing decline in global oil and food prices this year, inflation in 2009 is expected to be negligible.
Export volumes are projected to contract 16 percent in 2009 after a 6 percent expansion in 2008. Exports of services, more than half of which were accounted for by tourism receipts (around 8 percent of GDP) will also be heavily impacted by the slowdown in arrivals from advanced countries (40 percent of total tourists). Accordingly, exports of services are projected to contract by 6.6 percent this year. Import volumes should contract more than exports due to businesses running down inventories and a contraction in overall investment and consumption of imports. Net foreign demand will nevertheless contribute negatively to growth since in real terms exports represent a much larger share of GDP than imports.
After falling from $117 billion in March, Thailand’s foreign exchange reserves have increased since September, reaching $111 billion at the end of 2008, equivalent to 8 months of imports and 4.7 times short-term external debt. External debt is low at around US$65 billion or 25 percent of GDP. About 38 percent of the external debt is short-term, but trade credits – which increased with commodity prices – represent more than half of private short-term debt, while another 20 percent are intercompany loans. Public external debt (primarily owed by state-owned enterprises) comprises 20 percent of total external debt and less than one percent is short-term.

Thailand’s economic growth is falling by more than earlier expected amid a sharp and continuing decline in global trade.

With unemployment on the rise, the number of people living under the poverty line will likely increase. Employment opportunities for workers in the urban informal sector, such as contract workers in manufacturing, in construction, and in tourism are shrinking, and it is unclear if they can go back to agriculture. As the government plans another economic stimulus program, considerations should be given to measures that will boost employment and specifically target these workers.

PM: 2010 GDP to rise 3.5%

So far, the Thai government has enough capacity to finance the first economic stimulus package and the three-year public investment plan. In the face of shrinking revenues, the government estimates its budget deficit to be about 525 billion baht, or 6 percent of Thailand’s gross domestic product, in the fiscal year ending September 2009. It is also seeking loans from domestic and external sources to shore up the budget and support planned investment.

However, the World Bank cautioned that, for public debt to remain manageable, budget deficits will need to be reduced over the next few years and growth needs to return its long-term average, highlighting the importance of using the crisis as an opportunity to enhance growth prospects.

In December 2008, the overall economy in Thailand contracted from the same period last year. On the supply side, manufacturing production and tourism sector continued to contract, while farm income slowed down as a result of the deceleration in both major crop production and price. On the demand side, export, investment as well as import also contracted, while private consumption slightly improved from last month due to the cease of political turbulence as well as extended New Year holidays.The political unrest in the last quarter of 2008 will continue to dampen tourist confidence into at least the first half of 2009. In addition, the slow down in growth of the economies from which a large number of tourists come to Thailand, such as EU and Japan, will reduce tourist receipts next year. With the slow down in exports capacity utilization is expected to fall; which will negatively affect private investment.Household consumption growth will also continue to be dampened as income growth will be slower next year with employment increasing minimally, and consumer confidence falling, even though inflation will be significant lower at only around 2 percent compared to 6 percent this year. Significant downside risks remain to the growth projection should political instability heighten, the global economy decelerate faster than projected, and implementation of the fiscal stimulus is delayed.

International reserves stood at US$106 billion in early December 2008 compared to US$87.5 billion at end-2007. This is due to the large capital inflows in the first quarter of the year and again in the last quarter of the year. External debt is low at around US$66 billion or 30 percent of GDP, of which two-fifths are short-term debt.Three quarters of the short term debt are trade credits and inter-company loans. Public external debt (government and state-owned enterprises) make up one-fifth of total external debt and less than 1 percent of it is short-term. Overall, external debt service ratios are manageable at 6.1 percent of exports.

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