Thailand, World Bank, Growth The World Bank has once again released it East Asia and Pacific Economic Update, May 2012—Capturing New Sources of Growth. The report offers a somewhat optimistic picture for the region, while recognizing the challenges and risks that continue to be posed by the overall external environment, notably in Europe. The East Asia Pacific Region today has the strongest growth of any other region, as shown in World Bank Figure 2 below. While developing East Asia grew by 8.2 percent in 2011, it was nevertheless a drop from growth of nearly 10 percent in 2010, although this is explained in part due to the supply disruptions caused by the earthquake and Tsunami in Japan and flooding in Thailand, Laos, and Cambodia. Despite the weaker demand coming from the United States and Europe, as these regions continue a slow recovery from the global financial crisis, the East Asia and Pacific region managed strong growth in 2011 as domestic demand, supported by easing of monetary policies, took up the slack. World Bank Figure 10 clearly shows the declining emphasis on exports. The report does note, however, that the EU, US and Japan account for more than 40 percent of the region’s exports and that European banks provide one third of trade and project finance in Asia. “Most East Asian economies are well positioned to weather renewed volatility. Domestic demand has proved resilient to shocks. Many countries run current account surpluses and hold high levels of international reserves. Banking systems are generally well- capitalized,” said Bert Hofman, World Bank Chief Economist for the East Asia and Pacific Region And at the same time that domestic demand has been increasing there is a notable decrease in the region’s poverty levels. “The number of people living on less than US$2 a day is expected to decrease in 2012 by 24 million. Overall the number of people living in poverty has been cut in half in the last decade in East Asia and Pacific,” said Pamela Cox, World Bank East Asia and Pacific Regional Vice President.
This increased domestic demand is something that the Bank sees as the best prospect for maintaining high growth, job creation and poverty reduction, along with investment in productivity increases and continued international integration. This outlook bodes well for Thailand which not only has a vibrant domestic market, but is also moving away from economic growth that is based on the attraction of low wage employment towards increased productivity through technology and increased value-added products from the creativity and knowledge of the workforce. All of this should put ASEAN’s second largest economy in a good position when the ASEAN Economic Community emerges in 2015.
The 4.5% GDP growth forecast for Thailand is somewhat lower than that issued by the Bank of Thailand in May 2012, which sees growth for the year coming in at 6%, with other forecasts as high as 6.5%. Looking at Thailand, the World Bank counts among its reasons for growth lower global prices, government corporate tax reduction, which is now at 23% and will reduce to 20% at the end of the year, as well as the nation’s strong banking sector and high international reserves. Also having a positive effect on Thailand is the growth in China and signs of recovery in Japan and the US. Confidence in Thailand’s economy has been supported by the flood recovery and rehabilitation program and the public investments that will be made this year. The report also notes the government’s income support policies. Like other economies in the region, Thailand could still encounter challenges to its growth from several areas, such as to exports from the Eurozone crisis, a fall in rice exports, inflation stemming from income and consumption support policies and reconstruction, as well as the continued threat of floods. While consumption and support policies and reconstruction are listed among issues that could pose a challenge to growth, they are also among the reasons for the current level of growth, although clearly a balance needs to be struck. “Some countries will need to stimulate household consumption. In others, enhanced investment, particularly in infrastructure, offers the potential to sustain growth provided this does not exacerbate domestic demand pressures,” said Bryce Quillin, World Bank Economist and lead author of the report. “With a changing financial sector in the aftermath of the financial crisis, new ways to finance higher levels of infrastructure investment need to be developed. Governments would need to focus on accelerating the preparation of infrastructure projects.” The recent May meeting of the bank of Thailand’s Monetary Policy Committee “deemed the current level of the policy rate to be appropriate in supporting a smooth recovery in economic activity to normal levels, while keeping inflation risks manageable.”
With economic growth in Thailand strong for the foreseeable future, with the coming AEC in 2015, reduced corporate tax rates and located in a vibrant economic region, Thailand remains the ideal location for investors. This increased domestic demand is something that the Bank sees as the best prospect for maintaining high growth, job creation and poverty reduction, along with investment in productivity increases and continued international integration. This outlook bodes well for Thailand which not only has a vibrant domestic market, but is also moving away from economic growth that is based on the attraction of low wage employment towards increased productivity through technology and increased value-added products from the creativity and knowledge of the workforce. All of this should put ASEAN’s second largest economy in a good position when the ASEAN Economic Community emerges in 2015. The 4.5% GDP growth forecast for Thailand is somewhat lower than that issued by the Bank of Thailand in May 2012, which sees growth for the year coming in at 6%, with other forecasts as high as 6.5%. Looking at Thailand, the World Bank counts among its reasons for growth lower global prices, government corporate tax reduction, which is now at 23% and will reduce to 20% at the end of the year, as well as the nation’s strong banking sector and high international reserves. Also having a positive effect on Thailand is the growth in China and signs of recovery in Japan and the US. Confidence in Thailand’s economy has been supported by the flood recovery and rehabilitation program and the public investments that will be made this year. The report also notes the government’s income support policies. Like other economies in the region, Thailand could still encounter challenges to its growth from several areas, such as to exports from the Eurozone crisis, a fall in rice exports, inflation stemming from income and consumption support policies and reconstruction, as well as the continued threat of floods.
While consumption and support policies and reconstruction are listed among issues that could pose a challenge to growth, they are also among the reasons for the current level of growth, although clearly a balance needs to be struck. “Some countries will need to stimulate household consumption. In others, enhanced investment, particularly in infrastructure, offers the potential to sustain growth provided this does not exacerbate domestic demand pressures,” said Bryce Quillin, World Bank Economist and lead author of the report. “With a changing financial sector in the aftermath of the financial crisis, new ways to finance higher levels of infrastructure investment need to be developed. Governments would need to focus on accelerating the preparation of infrastructure projects.” The recent May meeting of the bank of Thailand’s Monetary Policy Committee “deemed the current level of the policy rate to be appropriate in supporting a smooth recovery in economic activity to normal levels, while keeping inflation risks manageable.” With economic growth in Thailand strong for the foreseeable future, with the coming AEC in 2015, reduced corporate tax rates and located in a vibrant economic region, Thailand remains the ideal location for investors.