Thai Economy in the third quarter of 2010 grew by 6.7 percent, thus the first 9 months recorded a solid growth of 9.3 percent. Such expansion was mainly supported by a strong recovery in the global economy as well as investor confidence. In addition, farm income rose in accordance with higher prices of major agriculture products, while unemployment rate remains low.
After seasonal adjustment, the Thai economy contracted from the prior quarter by 0.2 percent, the second-consecutive-quarter contraction.
The economy in 2010 is expected to grow by 7.9 percent, attributed by the recovery of the world economy and domestic demand. Private investment and consumption are expected to expand by 13.9 and 4.9 percent respectively, while export value in US dollar term is projected to rise by 25.1 percent.
The economic growth for 2011 is expected to be in the range of 3.5-4.5 percent, decelerated from the forecasted 7.9 percent growth in 2010 This is due to a global economic slowdown and the appreciation of Thai baht. Regarding the economic outlook, exports are projected to grow by 11.7 percent while private consumption and private investment are forecasted to expand by 4.3 and 9.8 percent respectively. Other key economic indicators are forecasted as follow: (i) headline inflation between 2.5-3.5 percent; (ii) unemployment rate in the range of 1.2-1.3 percent; and (iii) current account surplus of 3.3 percent of GDP.
The economic management for 2011 should emphasize the following issues: (i) assist those who are affected by the deluge in the late 2010 by implementing the farm income compensation scheme and rebuilding public infrastructure. In addition, the water resource management plan for both agriculture and consumption should be prepared in order to prevent the flood and drought in the future; (ii) manage and tackle the problem of rising commodities price which is caused by the flood, and a higher cost of production; (iii) encourage the export sector to consistently use financial instruments to manage risk arising from the exchange rate fluctuation. It is also recommended that financial institutions should create varieties of those instruments of which are easy to be used and have low operating costs; (iv) urgently help those labors who are affected by the flood and solving the problem of labor shortage in the industrial sector in order to support an incoming expansion in private investment and foreign direct investment; and (v) create harmony and solidarity among Thai people through the implementation of reconciliation plan as well as restoring Thai images and confidences of foreign tourists and investors.
Thai Economic Performance in Q3/2010 and outlook for 2010 and 2011
In the third quarter of 2010, Thai economy grew by 6.7 percent. Such expansion was mainly supported by a strong recovery in global economy as well as investor confidence. These recoveries led to an expansion of exports, investment and private consumption. However, the seasonally adjusted GDP contracted by 0.2 compared to the previous quarter while the GDP in the first 9 months recorded a solid growth of 9.3 percent.
Positive signs in Q3/2010
(1) Exports value in terms of US dollar in the third quarter of 2010 recorded its historic high of 49,721 million US dollars or expanded by 22.2 percent from the same period of last year. The key drivers included a 60.1 percent growth of vehicles, parts and accessories, 17.0 percent growth of integrated circuits, 38.2 percent growth of air conditioning machine, and a 93.9 percent growth of rubber. Most of major exported markets included US, EU (15) and Japan continued to expand whereas export to Australia recorded a contraction.
(2) Tourism sector showed a positive sign to normal situation. The number of inbound tourists in this quarter stood at 3.69 millions, increased by 12.5 percent from the same period of last year. This significant improvement was due to increased number of tourists from China, Malaysia, and India. As a result, Hotels and restaurants expanded by 10.1, accelerating from 0.2 percent growth in the previous quarter.
(3) Household consumption rose by 5.0 percent, supported by a rise in farmer income due to higher prices of major agriculture products such as rubber, cassava and maize. In addition, an employment condition remained favorable, especially employment in non-agricultural sector that recorded an increase of 2.3 percent. Unemployment rate remain low at 0.9 percent. As a result, consumer confidence to spend has increased, as witness from the hike in consumer confidence index (stood at 80.5 increased from 75.9 in the previous quarter).
(4) Private investment grew by 14.5 percent, attributed by an acceleration of construction, particularly residential construction in Bangkok metropolis area. On the contrary, the investment in machinery and equipments decelerated. The business sentiment index (BSI) in this quarter stood at 50.4, slightly improved from 49.3 in the previous quarter.
Thai Economic Outlook for 2010
For the year 2010, Office of the National Economic and Social Development Board expected the economy to expand by 7.9 percent, an upward revision from the previous projection. The strong economic growth during the first 9 months was supported by a global economic recovery and a continual improvement of domestic demand. Although during the last quarter of 2010, Thailand had severely suffered from flood but its impact on real sector was limited. Moreover, the higher than previously forecasted growth of global economy and trade volume will be the key supporting factors for exports sector.
Thai Economic Outlook for 2011
In the year 2011, Thai economy is expected to expand in the range of 3.5 — 4.5 percent, down from 7.9 percent in 2010 as a result of global economic slowdown. The upward trend of oil prices and Thai baht will affect costs of production as well as income from exports. Labor shortage in various industries will be a major obstacle in the manufacturing sector. Furthermore, flooding during the second half of 2010 will certainly have a drastic effect on agricultural sectors in the first quarter of 2011. Thus, headline inflation in 2011 is expected to be in a range of 2.5 — 3.5 percent. Household consumption is projected to grow by 4.3 percent while investment is estimated to expand by 8.0 percent. Export value in US dollar term is expected to grow by 11.7 percent with a current account surplus of 3.3 percent of GDP, down from a surplus of 4.3 percent of GDP in 2010.
1. Economic Performance in Q3/2010
Expenditure Side
Private consumption expenditure: expanded with a decelerated rate of 5.0 percent in the third quarter, down from 6.4 percent in the second quarter. This coincided with the decline in value added tax (VAT) and import value of consumer goods. In the third quarter of 2010, VAT and import value of consumer goods, at constant price, grew by 13.0 and 16.3 percent dropped from 20.1 and 34.9 percent in the second quarter. The key supporting factors included: (i) low unemployment rate; (ii) increase in farm income following an improvement in price of agricultural products and; (iii) low interest rate. Consumption on durable goods continued to expand at a decelerated rate of 23.7 percent after experienced a tremendous growth in the past quarter, particularly in automobiles, electrical appliances, and furniture. In addition, consumer confidence index on economic situation in this quarter rose to 72.6, improved significantly from 68.0 in the previous quarter due to increase in confidence in employment condition, income improvement and political stability.
"...Private consumption expenditure expanded by 5.0 percent as a result of low unemployment rate, increase in farm income as well as low interest rate. ..."
Private Investment expanded by 14.5 percent, slowed down from 17.8 percent in the previous quarter. This was mainly caused by a slowdown in equipment investment, which grew by 15.2 percent. On the contrary, construction investment continued to rise by 12.7 percent. This coincided with private investment index that increased at a decelerated rate of 20.0 percent, compared to the expansion of 21.8 percent in the previous quarter. The import of capital goods increased at a slower pace by 27.1 percent. In addition, most of the expansion came from import of machinery particularly for the export-oriented industries such as electronics, electrical appliances, and automobiles sector. Furthermore, sale volume of commercial car in domestic market continued to expand by 39.5 percent owing to credit easing by commercial banks, increase in farm income, and strong consumer and investor confidence. Similarly, investment in construction continued to expand. This can be seen in the expansion of construction area permitted in municipal zone by 18.1 percent, specifically in Bangkok.
"...Private investment expanded at a slower pace, mainly due to decline in growth rate of equipment investment expansion. ..."
Business Sentiment Index (BSI) remained strong at 50.4, increased from 49.3 in the previous quarter. Nevertheless, there are potential risks for future investments namely the global economic uncertainty, increase in cost of production as well as government restriction on price adjustment. In addition, BSI in production cost remained low at 37.0 while BSI in services improved to 52.7. The expected BSI index for the next 3 months continued to improve to a level of 56.1, as domestic political unrest has been eased out.
"...Export value in terms of US dollar experienced an increase of 22.2 percent while export value in terms of Thai baht expanded only by 13.7 percent due to an appreciation in Thai baht. ..."
Exports: both value and volume increased. In the third quarter of 2010, an export value in US dollar term expanded and reached its historic high at 49.721 million US dollars. However, the export value grew at a slower pace with the rate of 22.2 percent, compared to the second quarter which increased by 41.8 percent. The export volume and price only expanded by 13.8 and 7.4 percent respectively. Excluding unwrought gold, the export value expanded by 24.8 percent. This deceleration in growth was the result a high base effect, a slowdown in global economy caused by the economic crisis of EU and an appreciation of Thai baht that tend to distress Thailand’s competitiveness especially for resource-based industry. As witness in differential in growth rate of export value in Thai baht term and in US dollar term, the export value in Thai baht term rose by 13.7 percent.
Agricultural export value slowed down from the previous quarter. Agricultural export value expanded by 24.1 percent owing to sharp rise in export price, registered at 35.2 percent, whereas, export volume only grew by 8.4 percent. Similarly, manufacturing export volume and value grew at a slower rate of 17.0 and 21.9 percent respectively, compared to an increase of 35.0 and 42.9 percent in the second quarter. Meanwhile, price recorded a slightly increase of 4.2 percent. Major export products were computer and computer parts and electrical appliances, with an increase of export value at 2.0 and 24.3 percent respectively. The export value of high-technology products and resource-based products experienced the increase of 27.7 and 13.0 percent respectively. Nonetheless, the export of labor-intensive products sluggishly grew by 0.2 percent, compared to an expansion of 110.0 percent in the prior quarter, due to a deceleration in export of unwrought gold.
Export markets expanded in both major markets and other markets, particularly in ASEAN (9) of which export value increased by 27.5 percent, decelerating from a growth of 45.3 percent in the previous quarter. Similarly, export to China, US, Japan and EU (15) exhibited an expansion of 26.9, 25.4, 32.0 and 19.4 percent respectively. Regarding new markets, the exports to Hong Kong, Taiwan, India and South Korea grew by 21.7, 38.6, 24.7 and 12.6 percent respectively, whereas export to Australia contracted by 16.2 percent. This contraction was due to a decrease in export of unwrought gold.
"...Import value in terms of US dollars expanded by 30.7 percent, slightly lower than 44.8 percent growth in the previous quarter. All import product categories (seasonally adjusted) slowed down. ..."
Imports: value, volume and price slowed down. Import value in terms of US dollars expanded by 30.7 percent, lower than 44.8 percent growth in the previous quarter. Import price rose by 6.0 percent mainly due to an increase in oil price. In the third quarter, import volume expanded at a decelerated rate of 23.0 percent, down from 32.6 percent in the previous quarter. In addition, all import categories experienced a downturn as a result of high base effect from the second half of 2009.
The slowdown in import volume and value (seasonally adjusted) was recorded in all commodities. Capital goods increased at a decelerated rate both in volume and value. mport value expanded by 27.9 percent, down from 23.6 and 41.2 percent in the last two uarters respectively. This was due to the deceleration in growth of domestic investment and apital utilization. Similarly, raw material and semi-finished goods increased at a slower ace both in volume and value. Import value grew by 31.9 percent, down from 71.5 and 55.9 ercent in the first and the second quarter respectively, which was in line with the decelerated rowth of export and production. Import goods that recorded an increase were parts and lectrical appliances, chemical products, and plastic products. Import of consumer goods in alue, volume and price has slowed down, in accordance with private consumption. Import alue of consumer goods rose by 19.8 percent, down from 33.3 and 39.2 percent in last two uarters respectively. Whereas fuel and lubricant increased in price but decreased in olume, as a result of high base effect in import volume of oil. Import value expanded by 1.5 ercent, down from 43.8 and 48.0 respectively in last two quarter. Import volume decreased y 6.3 percent while import price rose by 8.5 percent.
Term of trade improved from the same period of last year as export price in terms of US ollar increased at a faster pace than that of import price. The price of export rose by 7 .4 ercent, while the import price increased by 6 .0 percent. Hence, term of trade in the third uarter of 2010 expanded by 1.3 percent.
"...Term of trade expanded by 1.3 percent. ..."
Trade balance registered a slow down on surplus. In third quarter of 2010, trade balance ecorded a surplus of 3,303 million US dollars (or equivalent to 101,291 million baht) compared o a surplus of 4,645 million US dollars (or equivalent to 150,437 million baht) in the second uarter.
"...Trade balance registered a slow down on surplus from the previous quarter. ..."
Production Side
Agricultural sector contracted by 3.3 percent after an expansion of 1.5 percent in the previous quarter. The crops production fell by 3.1 percent mainly due of the outbreak of mealy bug in cassava plantations and an unusually long drought during the first half of this year. This ultimately resulted in the production of cassava, maize, and palm oil to fall by 51.7, 26.9 and 11.8 percent respectively. Following a fall in supply and an increase in world demand for agricultural products, crops price expanded significantly by 38.0 percent owing to the dramatic increase in prices of cassava, rubber and maize by 121.6, 70.0 and 50.7 percent respectively. Nevertheless, domestic price of paddy declined by 13.1 percent consistent with the fall in price of rice in the world market. In addition, the lower price of paddy was also resulted from an earlier release of stocks by rice mills. Livestock prices continued to increase by 7.4 percent from the previous quarter following an increase in prices of swine and chicken as a result of limited supply in the market. The rising agricultural price has improved farm income by 33.7 percent in this quarter. In conclusion, agricultural sector in the last 9 months contracted by 1.4 percent.
"...Agricultural sector contracted by3.3 percent after an expansion of 1.5 percent in the previous quarter. Crops production declined by 3.1 percent while crops price and farm income still accelerated at a faster pace. ..."
Manufacturing sector expanded by 11.5 percent, the forth-consecutive-quarter expansion. The supporting factors for this expansion included a continual growth in sale order, especially in major export industries. In addition, domestic demand remained strong following an increase in farm income. The main engines of growth for the third quarter were: (i) High technology sector including motor vehicles industry, office machinery industry and electrical appliance and electronic industry, which grew by 43.3, 37.1, 15.7 and 2.6 percent respectively; and (ii) Labor intensive industries such as leather industry, wearing apparel and domestic appliance industries, which grew by 18.7, 16.0 and 23.2 percent respectively.
"...Manufacturing sector grew by 11.5 percent according to an expansion of domestic and foreign demand. ..."
At the end of the third quarter, the capacity utilization was at 64.3 percent, improving from 57.8 percent in the same period of last year. Major industries that employed capacity utilization above 80 percent were plastic product industry (103.9 percent), rubber product industry (90.7 percent), electronic industry (85.0 percent), office machinery industry (82.6 percent) and motor vehicle industry (82.1 percent). Moreover, inventory index grew by 0.6 percent, compared to the previous quarter. This indicated that the stock build-up will remain through the next quarter. For the first 9 months of this year, manufacturing sector expanded by 17.2 percent.
"...Capacity utilization was at 64.3 percent, rose from 57.8 percent in the previous quarter. ..."
Construction Sector grew by 5.2 percent, slowed down from 8.0 percent in the previous quarter. This was mainly a result of a sharp slowdown in public construction, which expanded by 0.4 percent compare to a growth of 5.9 percent in the previous quarter. Such slowdown was in line with reduction in sale volume of cement and steel products. However, private construction grew by 12.7 percent, accelerated from 8.8 percent in the previous quarter. Moreover, we also witnessed an accelerating growth of 18.1 percent in the total permitted area for construction. In particular, construction area for residential and industrial considerably expanded by 26.5 and 40.0 percent, respectively. This indicates a pick up in private sectors’ confidence in the prospect of the economy. For the first 9 months of 2010, construction sector grew by 6.9 percent.
"...Construction sector expanded by 5.2 percent down from 8.0 percent growth in the last quarter, as a result of a sharp slow down in public construction. ..."
The prices of construction material in the third quarter grew at a slower pace of 1.1 percent, due to declined in most of the price of construction materials especially cement and concrete which declined by 11.6 and 1.3 percent correspondingly. Furthermore, price of steel experienced a decelerating growth of 4.4 percent. However, price of wood product rose by 4.0 percent compared to the same period of last year.
Real estate sector expanded by 6.5 percent, considerably up from 2.4 percent in the previous quarter. Such expansion was mainly driven by continual increase in demand for dwelling, which reflected in an expansion of housing loan and total cumulative value of land and property transaction fees as compared to the same period of last year.
"...Real estate sector accelerated from last quarter as a result of the continual increase of demand for dwelling. ..."
Furthermore, the real estate price index for both single house and townhouse increased by 2.2 and 1.1 percent respectively. These were attributed by the continually soaring prices of construction material and land. In particular, the price of land grew by 2.1 percent accelerating from 1.7 percent growth in the previous quarter. For the past 9 months, real estate sector expanded by 5.2 percent.