The Thai economy in 2011 is expected to slow down due to the flooding situation, and is expected to rebound in 2012.
Dr. Somchai Sajjapongse, the Director-General of the Fiscal Policy Office (FPO) announced Thailand’s economic projection as of December 2011 for the Thai economy in 2011 to decelerate at an annualized rate of 1.1 percent as the severe and widespread flooding in the central region has adversely affected the production in manufacturing and agricultural sectors. Private consumption is expected to grow at a slower pace as the flooding has affected the production and transportation network, as well as farm income. Likewise, private investment is expected to slow down as the manufacturing production has been disrupted by the flooding. For external demand, the volume of exported goods and services in 2011 is also estimated to grow at a low rate mainly due to the supply chain problems from the flooding in the late of 2011, with downside risks from the US economic slowdown and the European sovereign debt crisis. Reflecting internal stability, headline inflation in 2011 is likely to rise to 3.9 percent due to higher raw food costs, pressured by poor weather conditions and increase in world oil prices.
Looking forward, the Thai economy in 2012 is forecasted to recover at an annualized rate of 5.0 percent (or within a range of 4.5 - 5.5 percent). Domestic demand will be the main driver of economic growth as the flood-damaged construction and equipments in the manufacturing sector would be rebuilt and repaired, coupled with government policies that stimulate domestic spending, in particular the higher minimum wage policy for low-income workers and government officials, and the rice pawning policy. Meanwhile, external demand is expected to grow at a slower pace due to the global economic slowdown. With regard to internal stability, headline inflation in 2012 is forecasted to be at 3.5 percent (or within a range of 3.0 - 4.0 percent) due to moderate global oil demand growth.
Major Assumptions and Economic Projections of 2011 and 2012 (As of Dec 2011)
2010 2011f 2012f (As of Dec 11) (As of Dec 11) Average Range Major Assumptions Exogenous Variables 1) Average Economic Growth Rate of Major Trading Partners(% y-o-y) 4.8 3.0 2.9 2.4 — 3.4 2) Dubai Crude Oil Price (USD per Barrel) 78.2 105.5 116.0 111.0 — 121.0 3) Export price in USD Dollars (% y-o-y) 9.2 5.6 5.5 4.5 — 6.5 4) Import price in USD Dollars (% y-o-y) 8.1 10.2 5.8 4.8 — 6.8 Policy Variables 5) Exchange Rate (Baht per USD Dollars) 31.7 30.5 30.8 29.8 — 31.8 6) Repurchase Rate (Policy Rate) at year-end (% y-o-y) 2.00 3.25 3.25 2.75 — 3.75 7) Fiscal-Year Pubic Expenditure (Trillion Baht) 2.52 2.77 2.93 2.92 — 2.95 Projections 1) Economic Growth Rate (% y-o-y) 7.8 1.1 5.0 4.5 — 5.5 2) Real Consumption Growth (% y-o-y) 5.1 2.0 4.0 3.5 - 4.5 - Real Private Consumption 4.8 2.3 3.8 3.3 — 4.3 - Real Public Consumption 6.4 0.4 4.5 4.0 — 5.0 3) Real Investment Growth (% y-o-y) 9.4 4.7 10.0 9.5 — 10.5 - Real Private Investment 13.8 8.4 10.3 9.3 — 11.3 - Real Public Investment -2.2 -6.6 8.8 7.8 — 9.8 4) Export Volume of Goods and Services (% y-o-y) 14.7 9.3 8.9 7.9 — 9.9 5) Import Volume of Goods and Services (% y-o-y) 21.5 9.6 9.6 8.6 — 10.6 6) Trade Balance (USD billion) 32.2 26.3 4.9 3.9 — 5.9 - Export Value of Goods in USD Dollar (% y-o-y) 28.5 16.7 14.1 13.1 — 15.1 - Import Value of Goods in USD dollar (% y-o-y) 36.8 23.3 26.7 25.7 - 27.7 7) Current Account (USD billion) 13.7 10.1 -2.0 -4.1 — 0.0 - Percentage of GDP 4.6 2.9 -0.5 -1.0 — 0.0 8) Headline Inflation (% y-o-y) 3.3 3.9 3.5 3.0 — 4.0 Core Inflation (% y-o-y) 1.0 2.4 2.3 1.8 — 2.8 9) Unemployment Rate (% of total labor force) 1.0 0.7 0.7 0.6 - 0.8 f = forecast by Fiscal Policy Office, Ministry of Finance, Thailand Attachment: Thailand’s Economic Projections 2011 and 2012 1. Thailand’s Economic Projections for 2011 1.1. Economic Growth The Thai economy in 2011 is forecasted to decelerate at an annualized rate of 1.1 percent, lower than that in the previous year resulting from the severe flooding which has adversely affected the production, in particular in manufacturing and agricultural sectors. Private consumption is projected to grow at a slower pace of 2.3 percent because of higher costs of living, mainly caused by supply shortage. Private investment in 2011 is likely to grow at a decreasing rate of 8.4 percent according to the halt of production, in particular, private investment in equipments which will be lower in the fourth quarter of 2011. For external demand, the volume of exported goods and services in 2011 is also estimated to grow at a lower rate of 9.3 percent mainly due to the supply chain problems, especially in central industrial estates, from the flooding in the late of 2011, coupled with downside risks from the US economic slowdown and the European sovereign debt crisis. Public consumption is forecasted to increase by 0.4 percent, slower than last year’s rate, owing to the delay in the budget disbursement plan in fiscal year 2012 which will impact fiscal outlays in the fourth quarter. Meanwhile, public investment is projected to contract at -6.6 percent as the capital expenditure disbursement under Thai Khem Khang: TKK 2012 program has started declining since the third quarter of 2011, leading to a decline in public investment at -7.8 percent year on year during the first three quarters of 2011. 1.2. Economic Stability For internal stability, headline inflation in 2011 is likely to rise to 3.9 percent as a result of higher raw food costs which have been pressured by poor weather conditions and increase in world oil prices. Unemployment is expected to hold its current low level of 0.7 percent of the total labor force. With regard to external stability, the current account is projected to record a smaller surplus of USD 10.1 billion, accounting for 2.9 percent of GDP as the estimated trade balance surplus declines to USD 26.3 billion. This is partially explained by accelerated import growth of 23.3 percent due to an increase in import prices in world markets. However, the total export value is likely to grow by 16.4 percent. 2. Thailand’s Economic Projections for 2012 1.1. Economic Growth The Thai economy in 2012 is forecasted to rebound at an annualized rate of 5.0 percent (or within a range of 4.5 — 5.5 percent) driven mainly by domestic demand. Private consumption is projected to grow at 3.8 percent (or within a range of 3.3 - 4.3 percent ) as a result of high employment, coupled with government policies that stimulate domestic spending such as the minimum wage policy for laborers and government officials and the rice pawning policy. On the other hand, private investment is estimated to grow at 10.3 percent per year (or within a range of 9.3 - 11.3 percent), supported by the necessity to rebuilt and repair the flood-damaged construction and equipments in the manufacturing sector. However, the unsettled European sovereign debt crisis has worsened the volume of exports of goods and services to grow at 8.9 percent (or within a range of 7.9 - 9.9 percent). At the same time, imports of goods and service in real terms are set to grow at 9.6 percent (or within the range of 8.6 — 10.6 percent) in response to an increase in imports of raw materials, machines, and equipments to repair damages caused by the flooding. With respect to public pending in 2012, public consumption is likely to grow at 4.5 percent (or within a range of 4.0 — 5.0 percent), with the continuation of the budgetary disbursement plan in 2012, while acceleration of public investment is projected to grow at 8.8 percent (or within a range of 7.8 — 9.8 percent). 1.2. Economic Stability For internal stability, headline inflation in 2012 is likely to rise to 3.5 percent (or within a range of 3.0 —4.0 percent), lower than that of the previous year due to the fragile recovery of developed countries which could lead to a slowdown in global oil demand and commodity prices. Unemployment is expected to hold its current low level of 0.7 percent of the total labor force (or within a range of 0.6 — 0.8 percent). On external stability, the current account in 2012 is projected to record a deficit of USD 2.0 billion, accounting for 0.5 percent of GDP (or within a range of (-1.0) — (0.0) percent of GDP) as the estimated trade balance surplus drops to USD 4.9 billion (or within a range of USD 3.9 - 5.9 billion), partially explained by accelerated import growth which is expected to increase to 26.7 percent per year (or within a range of 25.7 - 27.7 percent). However, export value is likely to grow by 14.1 percent (or within a range of 13.1 — 15.1 percent). Bureau of Macroeconomic Policy, Fiscal Policy Office, Tel: 0-2273-9020 Source: www.fpo.go.th