NESDB Outlook

Despite the floods that hit Thailand in the second half of the year, contracting the economy by 9% in the fourth quarter, the economy nevertheless managed to remain positive with an expansion of 0.1% for the year 2011. Nevertheless, export value for the year in US dollars increased by 16.4 percent, private consumption expenditure by 1.3 percent and private investment by 7.2 percent. The current account surplus for the year was a surplus of US$11.9 billion or 3.4 percent of GDP.

The information was released in the Economic Outlook, Thai Economic Performance in Q4 and Outlook for 2012. Looking ahead through 2012, “NESDB forecasted that the Thai economy in 2012 is projected to grow 5.5-6.5 percent with 3.5-4.0 percent of inflation and the current account will record a surplus of 1.2 percent to GDP.

The main driving factors will be the recovery and expansion in manufacturing sector, the investment for post-flood rehabilitations and new water management system under the government water management plan. Public investment expenditure is now seen to grow by 13 percent, which is faster than the previously forecasted rate of 8 percent.Furthermore, the financial and tax subsidy schemes carried out by the government will be crucial for proper recovery of agricultural, industrial, and service sectors. The current income restructuring policy will generally create new money supply in the economy and in turn will lead to a continued expansion in domestic demand. Moreover, production sector is expected to recover at a faster pace than previously expected, this would result in a continuous increase in private investment. The expansion of external demand is expected to be sound following the strong expansion of Asian economy.”

The economy is anticipated to remain sluggish during the first quarter of the year, as the country continues to cope with lingering effects of the flood. The driving forces during this quarter are said to be (i) a continual expansion in private consumption, owing to higher expenditure on durable goods and post-flood reconstruction, low unemployment, and increases of public servants’ salaries, (ii) a low expected inflation rate, due to an extension of the diesel excise tax reduction to the end of February, and (iii) a continual expansionary monetary policy including both lowering the policy interest rate and credit extension by the government.

 

 

Signs of strong recovery are expected to show in the second quarter of the year as production levels are increased to compensate for depleted inventories; increased production and sales in the automotive sector as the dual impacts of the floods in Thailand and earthquake in Japan begin to work through; increased minimum wages; increased construction and higher exports.

The highest level of growth is said to appear in the final quarter of the year, owing in part to the low base set in 2011, but also from increased spending, higher levels of industrial capacity and expansion in the agriculture sector.

Increased spending during the year is attributed in part to the level of government spending on flood prevention and water management. NESDB reports that “the Strategic Committee for Reconstruction and Future Development (SCRF) has approved the infrastructure development plan for year 2012-2016 with the amount of budget around 2.65 trillion baht. This plan also includes the Long Term Strategy for Flood Prevention and Mitigation in the Chao- Phraya River Basin, proposed by the Strategic Committee for Water Resources Management (SCWRM) with an estimate budget of 0.34 trillion baht.”

The export value in US dollars will expand by 17.2 percent in 2012, says NESDB. Moreover, “the export volume of goods and services is anticipated to increase by 11.5 percent, slightly accelerated from the former predicted growth of 11.3 percent, due to an upward revision of expected foreign tourist number.” The import value is likewise to increase by 24.3 percent.

In 2012, Thailand expects to receive from 20 to 21 million tourist arrivals. Last year, despite floods, the number of inbound tourists was 19.1 million persons, representing growth of 19.8 percent. The limited impact of the flood on the tourism sector is attributed to several factors, including (i) a rapid recovery of the tourist number after the flood; (ii) a smooth domestic political repatriation process which would support the rise of tourist’s confidence; and (iii) a continual increase in possibility of the higher number of Asian tourists especially from China and India as these economies has expanded at a satisfactory rate.

The strength of Thailand economy, its infrastructure and a government that is able to respond quickly to emerging situations has helped Thailand through its worst natural disaster in years, and reflects some of the many reasons why it is the safe and lucrative place to invest in Southeast Asia.

 

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