thailand economic monitor 2013

Thailand Economic Monitor

Avondale Investment Management (UK)‘Company Report’

Thailand Economic Monitor

Avondale Investment Management (UK) www.avondaleinvestment.com Copyright© 2013 Tony Randall Page 2

An overview of the Thai Economy 2013

The Thai Economy 2012

The economy in 2012 rebounded from the severe floods but continues to be affected by the

slowdown in the global economy. Real GDP in 2012 grew by 5.5 per cent supported by the

rebound in household consumption and greater investments by both the private and public

sectors as part of flood rehabilitation and the government’s consumption-stimulating

measures.

Capital inflows especially foreign direct investment (FDI) remained strong. In 2012, inflation

remained low at around 3 per cent, and is expected to continue to be low throughout this

year. Net exports, on the other hand, contributed negatively to GDP growth as exports were

affected by production disruptions in the first half of the year and the sharp slowdown in

demand from the EU, China, and ASEAN in the second half.

The Thai Economy 2013

The economy in 2013 is projected to grow by 5 per cent as manufacturing production fully

recovers from the floods and the global economy sees a modest recovery. Exports in 2013

are projected to grow by 5.5 per cent in US dollar terms compared to only 3.6 per cent in

2012.

Moreover, domestic demand, particularly investments, will continue its momentum from this

year as FDI rises sharply. The Government will also step up its investments particularly in

water resource management projects – using around Bt60 billion of the Bt350 billion (USD

11 billion) fund that was approved earlier this year under the Emergency Decree for Water

Management.

Household consumption growth, on the other hand, may slow down somewhat from that of

2012 as the government’s consumption stimulus measures, such as the First Car

Programme, which finished at the end of 2012.

The main challenge this year for Thailand’s growth continues to be the high uncertainty in

the global economic prospects, particularly related to the Eurozone crisis. Policies of which

may have an impact and which have to be closely monitored in 2013 include the rice paddy

pledging scheme and the nation-wide rise in minimum wages. For the longer term, issues of

skills development and the need to reduce inequalities in incomes and opportunities will be

priorities for Thailand.

Budget deficit will be 2.5 per cent of GDP for FY2013 in addition to the off-budget spending

for water resource management projects in FY2013. The overall budget for FY2013 is set at

Baht 2.4 trillion, a 0.8 per cent increase from that of last year.

Budget deficit is estimated by the Government to be at Bt300 billion in FY2013, compared to

Bt400 billion (2.7 per cent of GDP) in FY2012. However, the FY2013 budget will be

supplemented by the off-budget spending on water resource management projects which is

estimated to be around Bt60 billion (under the Emergency Decree for Water Management).


Public debt is estimated to be close to 50 per cent of GDP in 2013. Much of the

Government’s borrowing planned for FY2013 will be used to finance the off-budget water

resource management projects under the Emergency Decree on Water Resource

Management and the Government’s major policy programmes. The former could amount up

to Bt330 billion or around 2.8 per cent of GDP.

Borrowing will also be used to finance the Government’s major policy programs. These

programmes are estimated to cost around 2.4 per cent of GDP in 2013, while costing 5.5 per

cent in 2012. Given these, public debt is estimated to be close to 50 per cent of GDP by end-

2013 from around 45 per cent in end-2012. While this rise in debt level needs to be

managed prudently, it is not excessive.

Moreover, the structure of Thailand’s public debt is such that over 90 per cent of the debt is

domestic debt and long-term. However, because many of the programmes, such as the rice

paddy pledging scheme, are also financed through the government’s specialised financial

institutions (SFIs), these could weaken their balanced sheets in the future and are contingent

liabilities to the Government.

Minimum wages were raised by 40 per cent nation-wide in 2012 and have been raised again

this year to a uniform rate of Bt300 per day nationwide.

On April 1, 2012, minimum wages were raised to Bt300 per day in Bangkok and five other

vicinity provinces of Bangkok, plus Phuket province (a 40 per cent increase from the

previous minimum wage level in 2012) and by 40 per cent in the rest of the country. In

January 2013, minimum wages were raised to Bt300 per day nationwide, raising the national

average minimum wage by 22.4 per cent from that of 2012. These hikes are significantly

larger than the previous minimum wage hikes which averaged around 2.5 per cent per

annum from 2001-2011.

However, despite in the rise in wages, unemployment did not rise, but underemployment

(number of workers who work part time i.e. less than 35 hours per week and seeking to work

more) rose by 14.4 per cent year-on-year in the third quarter of 2012. This is a reflection of a

tight labour market in which employers adjust to the higher wages and the slower business

activities by not firing workers but by reducing the number of hours demanded from each

worker.

Special Topic – The Rice Paddy Pledging Scheme

The paddy pledging scheme is estimated to cost around 3.5 per cent of GDP each year, while the actual losses will be realized once the rice stocks are sold. Since October 2011, Thailand’s paddy pledging scheme has been expanded to cover all domestically produced rice for sale. The pledged price is set at around 50 per cent or around $200 above international rice prices per metric ton of milled rice. This scheme has cost the government around THB376 billion ($12.5 billion) for the 2011/2012 harvest season (October 2011 to September 2012) or around 3.4 per cent of GDP.


The pledged amount is expected to rise from 21.7 million metric tons last harvest season to 25 million this season. Thus, the government is expected to spend around THB 450 billion ($15 billion) or around 3.8 per cent of GDP for the 2012/2013 harvest season. The government has not sold its rice stock so far. The actual losses from the program and the impact on the fiscal stance will be realized only when the government sells it stocks. Given the trend of international rice prices as projected by the World Bank, the losses are estimated to be in the range of Bt115-150 billion (1.0-1.3 per cent of GDP) per harvest season. Source: AIM (UK), The World Bank, and BOT.

See also overleaf Appendix 1 Thailand Key Economic Indicators January 2013


Thailand Key Economic Indicators January 2013

Item Key Economic Indicator

Headline inflation + 2.9% CPI (y-o-y)

Private investment + 16.2% (y-o-y)

Public Debt 43.9% of GDP

GDP Growth + 5.5% Year end 2012

GDP 369.8 Billion USD$ Year end 2012

GDP Per Capita 5,470.9 USD$ Year end 2012

Unemployment rate 0.6% unemployment rate (out of a total of 39 million workforce)

Policy Interest rate 2.75% (Bank of Thailand)

Official foreign

reserves

181.4 USD$( 3.1 times short-term foreign debt)

Current account

balance

27 Billion .USD$

Private Consumption + 6% (y-o-y)

Tourist numbers for Q4

2012

5.3 million + 8.3% (y-o-y)

Exports

Imports

59.3 Billion USD$ - 3% (y-o-y)

54.3 Billion USD$ - 2.5% (y-o-y)

Global competiveness

ranking

38th out of 144 global economies, up one place from 39th y-o-y

World doing business

ranking

17 world ranking doing business second in Asia– Pacific region


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