thailand economic monitor (first semester 2010)

Press Briefing

June 24, 2010

2

overview

• The Thai economy has been running on one engine: external

demand

• Good news: engine working well thanks to continued recovery in

global economy (with help from China)

• Effects of the political crisis on GDP largely offset by external

demand, but social impact likely greater

• Not-so-good news: high vulnerability to external shocks (Greece?)

and below-potential growth in 2011 due to unfinished recovery in

advanced economies and continued uncertainty at home

Thailand’s dependence on external demand bodes well for the near term,

but a second engine of growth is needed for sustained long-term growth.

3

1. running on one engine

Thailand’s near-term growth remains driven by three sectors linked to

external demand: manufacturing, logistics and tourism.

1000

1050

1100

1150

475

525

575

625

Re

al T

HB

, SA

(le

vels

)

Re

al T

HB

, SA

(le

vels

)

3 Sectors linked to foreign demand (53 pct of GDP)

13 Sectors linked to dom. demand (47 pct of GDP)

GDP, right axis

Source: NESDB and World Bank Calculations

4


The global financial crisis exposed the risks of relying on one engine:

when the external fuel is cut, the economy falls.

6.4 5.2

2.9

-4.2

-7.1

-4.9

-2.7

5.8

12.0

77

71

79

99 96

91

99

85

82

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2008Q1 2008Q3 2009Q1 2009Q3 2010Q1

Perc

ent

Perc

ent

Contribution from other sectors (47% of 2009 GDP)

Contribution from sectors linked to external demand (53% of 2009 GDP)

Overall GDP Growth

Change in GDP accounted for sectors linked to external demand (right axis)

50

60

70

80

90

100

110

120

130

140

150

160

US

EU

Japan

China

Nominal merchandise imports (January 2007=100)

6.4 5.2

2.9

-4.2

-7.1

-4.9

-2.7

5.8

12.0

77

71

79

99 96

91

99

85

82

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2008Q1 2008Q3 2009Q1 2009Q3 2010Q1

Pe

rce

nt

Pe

rce

nt



Overall GDP Growth


GDP, y/y growth rates

Source: BoT, NESDB and World Bank Calculations

5


But once the fuel started flowing again, the economy returned to its

previous ‘flight path’.

50

60

70

80

90

100

110

120

130

140

150

160

US

EU

Japan

China


50

60

70

80

90

100

110

120

130

140

150

160

US

EU

Japan

China


6.4 5.2

2.9

-4.2

-7.1

-4.9

-2.7

5.8

12.0

77

71

79

99 96

91

99

85

82

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2008Q1 2008Q3 2009Q1 2009Q3 2010Q1

Pe

rce

nt

Pe

rce

nt



Overall GDP Growth


6.4 5.2

2.9

-4.2

-7.1

-4.9

-2.7

5.8

12.0

77

71

79

99 96

91

99

85

82

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2008Q1 2008Q3 2009Q1 2009Q3 2010Q1

Pe

rce

nt

Pe

rce

nt



Overall GDP Growth


6.4 5.2

2.9

-4.2

-7.1

-4.9

-2.7

5.8

12.0

77

71

79

99 96

91

99

85

82

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2008Q1 2008Q3 2009Q1 2009Q3 2010Q1

Pe

rce

nt

Pe

rce

nt



Overall GDP Growth


US

EU

Japan

China


50

60

70

80

90

100

110

120

130

140

150

160

US

EU

Japan

China


Source: BoT, NESDB and World Bank Calculations

GDP, y/y growth rates

6


Source: Bank of Thailand and World Bank staff calculations.

About 80 percent of Thailand’s export growth since November has come

from East Asia, mostly due to restocking in global supply chains.

-10.0

10.0

30.0

50.0

70.0

90.0

110.0

Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10

ASEAN

China

Other APEC

EU

US

Others

Contribution to nominal export growth (percent , share out of 100)

7


The electronics sector has been a key contributor to the recovery.

40

45

50

55

60

65

70

75

80

60

70

80

90

100

110

120

130

140

JAN 2008 APR 2008

JUL 2008 OCT 2008

JAN 2009 APR 2009

JUL 2009 OCT 2009

JAN 2010 APR 2010

Pe

rce

nt

Ind

ex

(2

00

8 =

10

0)

Production Index (left axis)

Capacity Utilization (right axis)

60

70

80

90

100

110

120

JAN 2008

APR 2008

JUL 2008

OCT 2008

JAN 2009

APR 2009

JUL 2009

OCT 2009

JAN 2010

APR 2010

Ind

ex

(2

00

8 =

10

0)

E&E Export Index

Overall Exports (excl. gold), Index

All figures are seasonally adjusted levels and except for overall exports refer to electrical and electronics only.

Source: Bank of Thailand and World Bank staff calculations.

0.20

-3.65

3.40

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

2000-2008 average 2009 2010 f

Pe

rce

nta

ge P

oin

ts

8


On the demand side, inventory restocking – following massive

drawdowns in 2009 – has made a large contribution in the first quarter,

but may have run its course.

Source: NESDB and World Bank staff calculations.

Contribution of inventories to yearly GDP growth

Q1 Actual: 1.88

Q2-Q4 (proj.): 1.52

9

1. running on one engine: impact of recent political turmoil

• As of March, forecast growth of 6.2 percent for 2010

• Performance of economy in the first quarter may have raised forecast

closer to 7 percent

• Impact of the political crisis on tourism, domestic demand likely erase

these gains

• Overall, growth expected to come at 6.1 percent as better-than-

expected first quarter performance is offset by political crisis

• However, impact on GDP may understate social impact, as relatively

more workers in affected sectors

Because the economy is driven primarily by external conditions, GDP

should expand in 2010 despite negative impact the political crisis, but

GDP likely understates social impact.

10


The manufacturing-for-exports sector (39 percent of GDP) was largely

undisrupted by the crisis and performed well in other political events.

1/ Index: Real Manufacturing Value Added in 2000 = 100.

Lines show difference in 4-quarter moving average of index for countries indicated.

Source: CEIC and World Bank Calculations

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Dif

fere

nce

in In

de

x 1

/

Pol Event

THA-MYS

THA-IDN

THA-PHL

PAD Protests Coup

Airport

ClosurePAD

Protests

Songkran

Riots

11


The events in April and May are likely to have an impact on tourism (8 pct

of GDP) for at least another two quarters.

Thin lines shows difference in 4-quarter moving average of index for countries indicated.


-10

0

10

20

30

40

50

60

70

0

20

40

60

80

100

120

140

160

180

200

Dif

fere

nce

in I

nd

ice

s

Ind

ex

(20

04

ave

rage

= 1

00

)Indonesia

Thailand

Thailand - Indonesia (right axis)

Airport closure

12


Household consumption posted solid gains in the first quarter, but

consumer confidence and other consumption indicators declined sharply

in April.

66

68

70

72

74

76

78

80

82

70

75

80

85

90

95

100

105

110

115

120JA

N 2

00

8

FEB

20

08

MA

R 2

00

8

AP

R 2

00

8

MA

Y 2

00

8

JUN

20

08

JUL

20

08

AU

G 2

00

8

SEP

20

08

OC

T 2

00

8

NO

V 2

00

8

DEC

20

08

JAN

20

09

r

FEB

20

09

r

MA

R 2

00

9 r

AP

R 2

00

9 r

MA

Y 2

00

9 r

JUN

20

09

r

JUL

20

09

r

AU

G 2

00

9 r

SEP

20

09

r

OC

T 2

00

9 r

NO

V 2

00

9 r

DEC

20

09

r

JAN

20

10

r

FEB

20

10

r

MA

R 2

01

0 r

AP

R 2

01

0 p

MA

Y 2

01

0

Ind

ex

(20

08

=1

00

)

Gross Value Added Tax at 2000 prices (Million baht)

Real Imports of Consumer Goods at 2000 Prices (Million US$)

UTCC Consumer Confidence Index

Source: Bank of Thailand and UTCC.

Retail16%

Hotels & Restaurants

7%

Agriculture39%

Manufacturing, Transport &

Communication

17%

Others21%

13


The resilience of the overall GDP to the political turmoil does not

translate into limited social impact given the large number of workers in

affected sectors.

Source: NSO Labor Force Survey, NESDB.

49 pct

of GDP

Labor force by sector of employment

17 pct

of GDP

14


The limited reaction from financial markets confirms the solid financial

position of Thai economy and likely limited overall impact on GDP.

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Yie

ld (

pe

rce

nt)

Time to maturity (years)

31/03/2009

15/02/2010

24/05/2010

-70

-60

-50

-40

-30

-20

-10

0

Deterioration

Improvement

May 19

Thailand stock market index compared to

a basket of regional indices 1/

1/ Regional indices include Malaysia, Philippines,

Singapore, China, Korea and Indonesia.

Index: 1/1/2000 = 100

Source: World Bank Development Prospects Group

Thailand Government yield curve

Source: Thai Bond Market Association

15


Current account surpluses support a strong external position, while ‘hot

money’ portfolio flows have been limited due to the political turmoil.

-10,000

-5,000

0

5,000

10,000

15,000

20,000

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010

Other (incl. errors & omissions) Government (incl. BoT & SOE)Bank Net Portfolio FlowsInward FDI Current AccountBoP

Source: Bank of Thailand

16


Inflation has risen from negative readings in 2009, but remains below

(already low) historical levels.

Source: Ministry of Commerce, World Bank Staff Calculations

-2

-1

0

1

2

3

4

Core CPI (actual,12-mo MA)

Average core CPI in 2006 and 2007

(1.4 percent per year)

BoT Inflation

Target

17


Ultimately the relatively favorable outlook of the external environment

dominates prospects for the Thai economy in 2010.

Source: World Bank Global Economic Prospects

2008 2009 2010f 2011f

GDP: World 1.7 -2.1 3.3 3.3

High Income 0.4 -3.3 2.3 2.4

Developing 5.7 1.7 6.2 6

Exports: World 3.2 -11.6 11.2 6.8

High Income 2 -12 6.6 6.2

Developing 6.5 -10.6 9.4 8.3

World

-15

-10

-5

0

5

10

15

Pe

rce

nt

High Income

Developing

World

Exports(dotted lines)

GDP(solid lines)

18


The favorable external outlook and low base of 2009 means that Thailand

post a high growth rate in 2010 despite the impact of the political crisis.

1000

1020

1040

1060

1080

1100

1120

1140

1160

1180

2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4

Re

al Q

uar

terl

y G

DP,

leve

ls, s

eas

on

ally

ad

just

ed

(TH

B B

illio

n)

Actual Forecasts

2009 year-on-yeargrowth: -2.2%

2008 2009 2010

2010 year-on-yeargrowth: 6.1%

2008 year-on-yeargrowth: 2.5%

Source: NESDB, World Bank calculations and forecasts

Quarterly GDP

Annual GDP growth

19


But risks are elevated: to avoid a deeper crisis, European countries must

cut their deficits sharply, which will reduce demand for Thai imports…

-10

-8

-6

-4

-2

0

2

4

6

8

10

Greece* Ireland Spain Portugal Italy

Primary balance in 2009

Required fiscal balance adjustment over 2010 -2020 to reach 60% of debt-to-GDP by 2030

% of GDP

* Data for Greece are based on the assumption that adjustment amounting to 7.6% of GDP is implemented in 2010.

Source: World Bank Global Economic Prospects

20

1. running on one engine: external demand

... as will a further weakening of the euro, which would also affect

tourism. Europe is currently the major source of tourists in Thailand.

Middle East, 3.4

Emerging East Asia,

10.2

Japan, 7.6

China, 5.6

Europe, 27.8

US, 4.5

Australia, 4.7

South Asia, 5.4

ASEAN, 27.5

Others, 3.3

Nationality of tourists to Thailand (Jan 08 - Nov 09, percent)

Source: Office of Tourism Development and World Bank staff calculations.

21


With the economy’s fate tied to external conditions and global demand

still below potential, growth will slow down to 3.6 percent in 2011.

• “Easy growth” factors will be exhausted in the first half of :

– base effects

– reactivation of existing capacity

– inventory restocking in Thailand and abroad

• External demand will continue to fuel Thailand‟s growth engine, but

the pace will be below historical averages

– unfinished recovery in US, Japan

– fiscal consolidation and slow growth in Europe

– Asian imports robust, but growth will slow down

• Sectors linked to domestic demand likely to grow even slower than in

the past due to continued political uncertainties in 2011

22

2. resilience for long-term growth: strong „body‟

The financial structure of the Thai economy is solid with strong public,

private, and external balance sheets.

Perc

ent

Trill

ion

THB

Capital Funds-LHS Gross NPL - LHS

% CAR - RHS % NPL to total loan - RHS

Source: Bank of Thailand

23


Deficits must eventually be reduced to ensure debt sustainability...

Thailand: Projected Debt Ratios (fiscal years)

Source: FPO, PDMO and World Bank calculations and projections.

45.9%45.9%

49.4%51.5%

52.4% 52.1% 51.3% 50.6%

0%

1%

2%

3%

4%

5%

6%

25%

30%

35%

40%

45%

50%

55%

60%

65%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Bu

dge

t D

efi

cit

( p

erc

en

t o

f G

DP

)

Pe

rce

nt

of

GD

P

Indirect Debt/GDP

Direct Debt/GDP

Deficit Assumed

Indicative

debt ceiling

24


… but more public investments are needed while disbursements of

public investment plans have remained sluggish.

Public Investment

207 201 103

129 130

122

263 260

218

11

8

126

49

-

100

200

300

400

500

600

700

CY2008 2009 2010F

Bill

ion

bah

tSP2 (Others)

SP2 (Emergency Decree: Bt350 bn)

SP1

SOEs

Local Administrative Org.CG (on-budget)

Source: FPO, PDMO and World Bank calculations and projections.

25

2. resilience for long-term growth: firing up the second engine

The services sector in Thailand underperformed compared to its peers

and services as a share of GDP declined between 2001 and 2009.


20

30

40

50

60

70

80

90

100

110

Pe

rce

nt

Contribution of Services to GDP Growth (2001-2008 average)

Share of Services in GDP (2008)

Average of Contribution

Average of Share

26

2. resilience for long-term growth: firing up the second engine

A long-term growth strategy should include both sectors linked to

domestic as well as external demand.

• Elements of a new growth strategy potentially include:

– Higher growth in the services sectors, especially in high-value added

services such as medical tourism or creative industries, possibly driven

by increased trade in services

– Increase in the number of high value-added tasks in manufacturing (such

as product design and development) that are performed in Thailand

– Boost productivity in agriculture

• These elements may call for, among others:

– an increased supply of highly-skilled and creative professionals

– regulatory and institutional reforms (e.g. in the services sector)

– greater regional integration and trade of both goods and services

27

summary: growth projections

The economy is expected to grow by 6.1 percent supported by export-

related manufacturing on the production side and inventory restocking

and exports on the demand side.

Real GDP Growth Rates - Percent, Year-on-Year

Share in 2009 2010 2010 2011

2009 GDP Year Q1 Q2 Q3 Q4p Year(p) Year (p)

Consumption 63.2 -0.1 4.5 0.4 0.9 2.7 2.1 3.7

Private 53.1 -1.1 4.0 1.4 2.0 2.0 2.3 3.5

Public 10.1 5.8 6.9 -5.0 -4.0 6.5 0.8 5.0

Gross Fixed Capital

Formation 20.7 -9.0 12.6 6.1 6.0 7.6 8.0 5.4

Public 5.7 2.7 2.7 4.0 5.0 6.5 4.6 5.0

Private 15.0 -12.8 15.8 7.0 6.5 7.9 9.3 5.5

Change in Inventories -2.3 -268.2 137.1 260.0 88.0 -94.0 -145.6 -40.0

memo: level of chg. in inventories -98,510 24,773 23,251 -4,217 1,081 44,888 26,933

Total Domestic Demand 81.5 -6.6 18.6 6.2 5.8 2.0 7.8 3.6

Exports 65.1 -12.7 16.2 17.7 11.5 7.0 12.8 7.0

Goods 52.4 -14.0 16.5 20.6 13.2 8.0 14.3 7.7

Services 12.8 -6.9 15.0 4.0 3.5 3.0 6.6 4.0

Imports 46.6 -21.8 31.4 25.0 15.1 6.7 18.5 8.2

Goods 36.8 -23.7 43.2 31.0 17.0 6.1 22.4 9.0

Services 9.8 -13.5 -4.5 4.0 7.0 9.5 4.0 4.5

Net Foreign Demand 18.5 23.4 -10.3 -4.2 2.1 7.6 -1.7 3.5

By Sectors:

Agriculture 8.9 -0.5 0.2 0.5 1.5 1.0 0.8 2.0

Industry 44.1 -4.2 20.7 8.4 7.7 3.8 9.9 4.7

Services 47.0 -0.4 5.8 1.2 2.8 2.4 3.1 2.7

GDP 100.0 -2.2 12.0 4.6 5.1 2.9 6.1 3.6

Source: World Bank Projections

Thank you!

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thailand economic monitor (first semester 2010)

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