ADB Foresees
Continued Growth in Asia

According to the Asian Development Bank, most of developing Asia will likely see their economies improve on increased domestic demand and a modest recovery in export growth; overall GDP is forecast to rise 6.6% in 2013 from 6.0% last year. Furthermore, given the evolving global economic landscape, policymakers in Asia’s emerging markets should not let short term adjustments interfere with the longer-term goal of more balanced, sustainable, inclusive, and integrated national economies. In addition, as advanced economies are readjusting, Asia continues to deepen initiatives and explore new ways to enhance regional cooperation, collaboration and coordination. Thailand is at the forefront of this economic transformation.

Despite a shift in direction of Asia’s exports, the share of intraregional exports has remained unchanged at around 56% in 2011. In fact, ASEAN countries currently supply 15% of total output in developing Asia and 25% of the region’s total trade. Rapidly expanding trade links throughout developing Asia reflects the heavy involvement of ASEAN countries in global value chains, which has made them essential components of the global factory. Equally significant, currency swap arrangements have been used widely since the 2008/09 global financial crisis and have become a major form of central bank coordination.

The proliferation of free trade agreements (FTAs) has been greatest in Asia with more than 100 ratified FTAs involving at least one Asian economy. However, two key proposals have been advanced to disentangle the Asian noodle bowl: consolidation — which creates a regional FTA to harmonize bilateral FTAs; and multilateralization — which grants non-discriminatory preferences to nonmembers, eliminating preference discrepancies.

To capitalize on ASEAN’s intensive production network, the region is moving to intensify its integration. Thailand and the ASEAN countries aim to achieve the ASEAN Economic Community (AEC) by 2015, which seeks to promote the free flow of goods and services, investments, and skilled labor among its members. Realizing further economic integration, both within and beyond ASEAN, has the potential to improve income and welfare in ASEAN economies still further. Thailand is a leader in this endeavor.

Southeast Asian countries maintained growth momentum by relying more on domestic demand. Thailand’s GDP growth accelerated to 6.4% from 0.1% in 2011 on reconstruction efforts following massive flooding. Together, Southeast Asia’s economies are expected to retain growth at 5.5% in 2013. The five largest economies (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) are forecast to expand 5.8% in 2013, after growing 5.6% in 2012.

The AEC promises to build on ASEAN’s current strong growth prospects to stimulate progress toward higher per capita income in each member country. At present, almost all of the ten ASEAN countries have graduated from low-income status. Thailand and Malaysia are now categorized as upper-middle income countries.

As pointed out by the Asian Development Bank report, Thailand’s economy rebounded remarkably last year from flooding that swamped industrial estates, farmland, and parts of the capital Bangkok in late 2011. GDP rose by 6.4% in 2012 compared with just 0.1% in the previous year. Nonetheless, there are several noteworthy traits of the current state of the Thai economy that must be stressed.

 

To begin, private consumption increased by 6.6% to contribute about half of total GDP growth. Indeed, consumption was stimulated by demand to replace household items after the floods and by several government policies. These included increases in minimum wages by up to 40% in seven provinces and in public service salaries, a tax rebate to first-time buyers of domestically made cars, which some 1.2 million car buyers took advantage of, tax breaks for first-time buyers of houses, and a government decision to buy un-milled rice from farmers.

Similarly, growth in employment and wages supported consumption, as average wages rose by 11.8% and employment by 1.2%. The unemployment rate fell to just 0.5% by year-end.

Furthermore, fixed capital investment rose by 13.3%, propelled by the reconstruction of flood-damaged factories, houses, and other infrastructure and the replacement of capital equipment. Public construction was spurred by the building of mass rapid transit projects in Bangkok and mobile telecommunications networks.

Meanwhile, car and truck production jumped by 72%, reflecting the low base caused by the 2011 floods and additional demand stimulated by the rebate for first-car buyers. In fact, manufacturing production rose by 7.0% and the industry sector as a whole contributed 3.4 percentage points to GDP growth, the biggest sector contribution from the supply side.

The service sector grew by 5.8% and also was an important source of GDP growth. A 16% rise in tourist arrivals, to 22.3 million, contributed to 8.8% growth in the hotels and restaurants subsector. Financial services grew by 6.6%, with insurance benefiting from buoyant auto sales. Agricultural output increased by 3.1% with higher output of rice, cassava, natural rubber, and oil palm.

Likewise, food price inflation eased and fuel prices were fairly stable. Despite picking up in the fourth quarter because of an increase in electricity tariffs and higher excise taxes on alcohol and tobacco, inflation for 2012 was the lowest in 3 years.

Moreover, the Bank of Thailand, lowered its policy interest rate to 3.0% to assist economic recovery after the floods, and reduced the rate again in October 2012 to 2.75%, slightly below the inflation rate.

And last but not least, the capital and financial account recorded a substantial surplus, largely because of net portfolio inflows and loans to businesses. The overall balance of payments remained in surplus, and gross international reserves rose by 3.7% to $181.6 billion, covering 10 months of imports.

Concerning Thailand’s future prospects, economic growth is expected to moderate to about 5% this year and 2014. Government investment is foreseen to contribute more to the national economy, with public investment projected to rise by 12.5% this year. The water management program should gather momentum from the second half of 2013, with $1.3 billion projected to be spent this year. The Government plans legislation under which it can borrow the equivalent of $67 billion off-budget over 7 years to invest in transport infrastructure: roads, railways, seaports, and airports. These projects will boost development and productivity which, in turn, will sustain gains in living standards.

Finally, it should be highlighted that business sentiment generally was high early in 2013 and lending rate relatively low. Also, early in 2013 the Bank of Thailand noted positive signs for continued economic growth, pointing to increases in indexes of consumption and investment, buoyant tourism, and an uptrend in exports in January. (Thailand Board of Investment reports promotion approvals in 2012 of 2,262 projects for a value of 983.9 billion baht.)

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