Thailand and region grow in 2010
The World Bank’s East Asia and Pacific Update 2010, Volume 2, released at the end of October, clearly states that the output of the region has recovered to above pre-crisis levels and in fact, for some countries, is expanding near pre-crisis rates. The economy in Thailand, in fact, has grown by 10.6 percent year-on-year as of the first half of 2010, which is above pre-crisis levels. The report underlines a number of challenges remaining for Thailand, but that despite slower growth for the second half of the year it sees the nation’s GDP growing by 7.5 percent for the full year. At the end of September 2010, Thailand’s Ministry of Finance raised its annual growth projection to the same level, adding that private investment is likely to increase by 16.5 percent for the year, against its previous projection of 4.2 percent. A significant contributing factor to the stellar economic growth in Thailand during such difficult times in the global economy, and with domestic political tensions, was the fact that “a higher proportion of manufacturing output (in this case vehicles) went to domestic rather than foreign consumption.” The Bank reports that private consumption in Thailand during the first half year grew by 7.6 percent, with a near 50 percent increase in vehicle purchases, year-on-year. This growth in private consumption is reflective of the overall situation in East Asia, where the Bank reports that the contribution of private consumption to GDP, for most middle-income countries, recovered to pre-crisis levels. Thailand’s auto industry has not only recovered from the global economic recession, but is at a tipping point and now poised to achieve an annual auto production of 2.5 million to 3 million units within the next five to seven years, as reported by the Thai Auto Institute. Auto production in 2010 alone could reach between 1.6 million and 1.8 million units. Thailand’s largest auto manufacturer, Toyota, has reported a one to two month back order for almost every model, seeing this trend to continue as a result of growth in both domestic and export markets. While exports from the region have also recovered, their growth is seen to be slowing in the face of slowing consumer demand and uncertain G-3 growth prospects. In Thailand, growth in the manufacturing sector has been driven by export demand, and in Q2 merchandise exports grew by 42 percent year-on-year. Total exports as of the end of September 2010, according to the Ministry of Commerce, have increased by 22.71 percent year- on-year.
On the fiscal policy side, the Work Bank writes that “…deficits in most countries are projected to remain substantially larger than pre‐crisis averages at least through 2011, as governments worry about the downside risks to growth despite the clear recovery in private investment and consumption. Moreover, in the region’s middle‐income countries some temporary stimulus measures are becoming permanent and governments are planning to boost infrastructure spending to address gaps accumulated since the 1997–98 Asian financial crisis.” This is true in Thailand, with the introduction of the agricultural price insurance scheme, pension, and education subsidies. At the same time, capital expenditures in Thailand have increased under the stimulus package, aimed at enhancing the nation’s water, transportation and other infrastructure. The report does state that although Thailand’s infrastructure could be better, the quality of its infrastructure is better than most of its neighbors.
In September 2010, Prime Minister Abhisit Vejjajiva, speaking at the “Special Investors Event for the Stock Exchange of Thailand”, announced that the government would be embarking on new major logistic and infrastructure projects. This included the approval of a framework for Thailand-China cooperation to build three high-speed train routes connecting Thailand’s northeast with China via Lao PDR; connecting Bangkok to the Thai eastern seaboard center of Rayong; and a route to the Malaysian border town of Padang Besar. In addition to providing improved rail service, the construction of highspeed train routes is in preparation for ASEAN becoming a single market and Thailand’s role as a production base within that the Economic Community. The fiscal deficit in Thailand, as reported by the World Bank, is projected at 3.2 percent of GDP in FY2011, which is an increase of 1.9 percent above FY2010. Nevertheless, the report also notes the intention of the government to balance the budget within the next five years. Thailand is among those countries noted that have taken measure to expand outflows and liberalize capital accounts. This includes measures to “…facilitate outflows. These include lifting limits on vertical outward investments, increasing limits on outward FDI per company, raising ceilings on property investments, increasing the maximum for foreign currency deposits, and more than doubling the minimum amount of mandatory repatriation of export earnings.”
Clearly, there remain challenges ahead for Thailand and for the region, particularly as unemployment in major export destinations pressures demand for manufactures. At the same time, significant progress has been made and Thailand’s economy has been returned to the path of growth and progress, looking to the future and ever increasing levels of investment and trade.