Press Briefing June 24, 2010
overview 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.
• 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
2
1. running on one engine Thailand’s near-term growth remains driven by three sectors linked to external demand: manufacturing, logistics and tourism.
3 Sectors linked to foreign demand (53 pct of GDP) 13 Sectors linked to dom. demand (47 pct of GDP) GDP, right axis
1150
575
1100
525
1050
475
1000
Real THB, SA (levels)
Real THB, SA (levels)
625
Source: NESDB and World Bank Calculations 3
1. running on one engine The global financial crisis exposed the risks of relying on one engine: when the external fuel is cut, the economy falls. 15.0
160
99
15.0
150
10.0
140
10.0
Percent
130
Percent
120 110 100 90
US
80
EU
70
GDP, y/y growth rates
Japan
5.0
50
Source: BoT, NESDB and World Bank Calculations
96 100.0 91
99 85 12.0
79 91
90.0
82 80.0
5.2 71
79
70.0
2.9
5.0
60.0
5.8
2.9
50.0
0.0 0.0
40.0
-5.0
-5.0
30.0
-2.7 -4.2
-4.2
-4.9 -7.1
China
60
96
77 77 6.4 6.4 5.2 71
99
Percent
Nominal merchandise imports (January 2007=100)
20.0
-7.1
-10.0 -10.0
-4.9
10.0 0.0
2008Q1 2008Q1 2008Q3
2008Q3 2009Q1 2009Q3 2009Q1 2010Q1
2009
Contribution from other sectors (47% ofother 2009 GDP) Contribution from sectors (47% of 2009 G Contribution from sectors linked to external demandlinked (53% of 2009 GDP) Contribution from sectors to external dem Overall GDP Growth Overall GDP Growth Change in GDP accounted for sectors linked to external demand (right axis)
Change in GDP accounted for sectors linked to e 4
1. running on one engine But once the fuel started flowing again, the economy returned to its previous ‘flight path’.
110 110 100 100 90 90 80 80 70 70 60 60 50 50
6.4
140 130 120
79
77 5.2 71
5.0
6.410.0 5.2 71
0.0
5.0
85 79
77
6.4
5.0
2.9 0.0
91 79
2.9
91 100.0 96
12.0
70.0
60.0
5.8
60.0 2.9
50.0 0.0
40.0
90 80 70
-5.0
EU EU
US
Japan Japan
EU
China China
Japan
-10.0
2008Q1
-4.2
-5.0
-7.1
-10.0
2008Q3
-10.0
-4.9
5.8
-4.2
-4.2
-4.9 20.0
-7.1
30.0
-2.7 -4.9
-7.1 10.0
20.0 10.0
0.0
2009Q1 2009Q1 2008Q12009Q32008Q3 2010Q1
50.0 40.0
-2.7 30.0
-2.7 -5.0 US US
90.0
70.0
110 100
99
82 80.0 85 1 91
82 80.0
5.2 71
5.8
85 12.0 90.0
Percent
120 120
10.0
150
99
99
77
Percent
130 130
160
Percent
140 140
10.0
Percent
150 150
99 Nominal merchandise 15.0 imports (January 2007=100) 15.0 96
100.0
99
GDP, y/y growth rates
2007=100) Nominal Nominalmerchandise merchandiseimports imports(January (January2007=100) 2007=100)
160 160
96
Percent
99
15.0
2009Q3
0.0
201
2009Q3 2010Q1 from other sectors (47% of 2009 GDP) Contribution from other 2008Q1 sectors (47% 2008Q3 of Contribution 2009 GDP) 2009Q1 Contribution from sectors linked to external demand (53% of 2 Contribution from sectors linked to external demand (53% of of 2009 GDP) Contribution from other sectors (47% 2009 GDP) Overall GDP Growth Overall GDP Growth Contribution from sectors linked to external demand (53% of 2009 GDP) Change in GDP accounted for sectors Change in GDP accounted for sectors linked to external demand (right axis) linked to external deman China
60 50
Overall GDP Growth Change in GDP accounted for sectors linked to external demand (right axis)
Source: BoT, NESDB and World Bank Calculations 5
1. running on one engine About 80 percent of Thailand’s export growth since November has come from East Asia, mostly due to restocking in global supply chains.
Contribution to nominal export growth (percent , share out of 100)
110.0
ASEAN 90.0
China Other APEC
70.0
EU US
50.0
Others 30.0
10.0
-10.0
Nov 09
Dec 09
Jan 10
Feb 10
Mar 10
Apr 10
Source: Bank of Thailand and World Bank staff calculations.
6
1. running on one engine The electronics sector has been a key contributor to the recovery.
120
140
80 Production Index (left axis)
130
110
Capacity Utilization (right axis)
75
120
70
110
65
100
60
90
55
80
50
70
45
60
40
90
80
Percent
Index (2008 = 100)
Index (2008 = 100)
100
70
E&E Export Index Overall Exports (excl. gold), Index 60 JAN 2008
APR 2008
JUL 2008
OCT 2008
JAN 2009
APR 2009
JUL 2009
OCT 2009
JAN 2010
APR 2010
JAN 2008 APR JUL 2008 OCT JAN 2009 APR JUL 2009 OCT JAN 2010 APR 2008 2008 2009 2009 2010
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.
7
1. running on one engine 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. 4.00
Contribution of inventories to yearly GDP growth
3.40
3.00 Q2-Q4 (proj.): 1.52
Percentage Points
2.00 1.00
Q1 Actual: 1.88
0.20 0.00 -1.00 -2.00 -3.00 -3.65
-4.00 2000-2008 average
2009
Source: NESDB and World Bank staff calculations.
2010 f 8
1. running on one engine: impact of recent political turmoil 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.
• 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-thanexpected first quarter performance is offset by political crisis • However, impact on GDP may understate social impact, as relatively more workers in affected sectors 9
1. running on one engine The manufacturing-for-exports sector (39 percent of GDP) was largely undisrupted by the crisis and performed well in other political events. 30.0 Pol Event
PAD Protests
Airport PAD Protests Closure Coup
Songkran Riots5.0
THA-MYS 25.0
4.5
THA-IDN THA-PHL
4.0
Difference in Index 1/
3.5
20.0 3.0
15.0
2.5
2.0
10.0 1.5
1.0
5.0 0.5
0.0
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
10
1. running on one engine The events in April and May are likely to have an impact on tourism (8 pct of GDP) for at least another two quarters. 200 180
70
Indonesia Thailand Thailand - Indonesia (right axis)
60 50
140 40
120 100
30
80
20
60 40 20 0
Airport closure
Difference in Indices
Index (2004 average = 100)
160
10 0 -10
Thin lines shows difference in 4-quarter moving average of index for countries indicated. Source: CEIC and World Bank Calculations
11
1. running on one engine Household consumption posted solid gains in the first quarter, but consumer confidence and other consumption indicators declined sharply in April. 120
82
115
80
110 78
Index (2008=100)
105 76
100 95
74
90
72
85 70
80 75
68 66
JAN 2008 FEB 2008 MAR 2008 APR 2008 MAY 2008 JUN 2008 JUL 2008 AUG 2008 SEP 2008 OCT 2008 NOV 2008 DEC 2008 JAN 2009 r FEB 2009 r MAR 2009 r APR 2009 r MAY 2009 r JUN 2009 r JUL 2009 r AUG 2009 r SEP 2009 r OCT 2009 r NOV 2009 r DEC 2009 r JAN 2010 r FEB 2010 r MAR 2010 r APR 2010 p MAY 2010
70
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. 12
1. running on one engine 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. Labor force by sector of employment Others 21%
17 pct of GDP
Retail 16% Hotels & Restaurants 7%
49 pct of GDP
Manufacturing, Transport & Communication 17% Agriculture 39%
Source: NSO Labor Force Survey, NESDB.
13
1. running on one engine The limited reaction from financial markets confirms the solid financial position of Thai economy and likely limited overall impact on GDP. 0
-10
5.0
Thailand stock market index compared to a basket of regional indices 1/
Thailand Government yield curve
4.5
-20 -30
Improvement
-40 -50
Deterioration
Yield (percent)
4.0 3.5 3.0 2.5
31/03/2009
2.0
15/02/2010
1.5
24/05/2010
-60
May 19 -70
1.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Time to maturity (years)
1/ Regional indices include Malaysia, Philippines, Source: Thai Bond Market Association Singapore, China, Korea and Indonesia. Index: 1/1/2000 = 100 Source: World Bank Development Prospects Group
14
1. running on one engine Current account surpluses support a strong external position, while ‘hot money’ portfolio flows have been limited due to the political turmoil. 20,000
15,000
10,000
5,000
0
-5,000 Other (incl. errors & omissions) Bank Inward FDI BoP
-10,000 Q1 2008
Q2 2008
Q3 2008
Q4 2008
Source: Bank of Thailand
Q1 2009
Government (incl. BoT & SOE) Net Portfolio Flows Current Account Q2 2009
Q3 2009
Q4 2009
Q1 2010
15
1. running on one engine Inflation has risen from negative readings in 2009, but remains below (already low) historical levels. 4
BoT Inflation Target
3 2 1 0 -1
Average core CPI in 2006 and 2007 (1.4 percent per year)
Core CPI (actual, 12-mo MA)
-2
Source: Ministry of Commerce, World Bank Staff Calculations 16
1. running on one engine Ultimately the relatively favorable outlook of the external environment dominates prospects for the Thai economy in 2010. 15
10
GDP (solid lines)
Percent
5
0
-5
-10
Exports (dotted lines)
High Income Developing
-15
World 2008
2009
2010f
2011f
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
3.2
-11.6
11.2
6.8
GDP: World
Exports: World High Income
2
-12
6.6
6.2
Developing
6.5
-10.6
9.4
8.3
World
Source: World Bank Global Economic Prospects 17
1. running on one engine 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. 1180
Real Quarterly GDP, levels, seasonally adjusted (THB Billion)
Actual
Forecasts
1160
1140
Quarterly GDP 1120
1100
1080
2010 year-on-year growth: 6.1%
1060
1040
2008 year-on-year growth: 2.5%
2009 year-on-year growth: -2.2%
1020
Annual GDP growth
1000 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4
2008
2009
2010
Source: NESDB, World Bank calculations and forecasts 18
1. running on one engine But risks are elevated: to avoid a deeper crisis, European countries must cut their deficits sharply, which will reduce demand for Thai imports‌ Primary balance in 2009 % of GDP
Required fiscal balance adjustment over 2010 -2020 to reach 60% of debt-to-GDP by 2030
10 8 6 4 2 0 -2 -4 -6 -8 -10
Greece*
Ireland
Spain
Portugal
Italy
* 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
19
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. Nationality of tourists to Thailand (Jan 08 - Nov 09, percent)
Others, 3.3
Middle East, 3.4 Emerging East Asia, 10.2
ASEAN, 27.5
Japan, 7.6 China, 5.6
South Asia, 5.4
Europe, 27.8
Australia, 4.7 US, 4.5 Source: Office of Tourism Development and World Bank staff calculations. 20
1. running on one engine 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
21
2. resilience for long-term growth: strong „bodyâ€&#x;
Percent
Trillion THB
The financial structure of the Thai economy is solid with strong public, private, and external balance sheets.
Capital Funds-LHS
Gross NPL - LHS
% CAR - RHS
% NPL to total loan - RHS
Source: Bank of Thailand 22
2. resilience for long-term growth: strong „bodyâ€&#x; Deficits must eventually be reduced to ensure debt sustainability...
Thailand: Projected Debt Ratios (fiscal years) Indirect Debt/GDP Direct Debt/GDP Deficit Assumed
60%
Percent of GDP
55% 50%
49.4%
51.5%
52.4%
52.1%
51.3%
6%
5%
50.6% 4%
45.9% 45.9%
45%
3%
40%
2%
35% 1%
30% 25%
Budget Deficit ( percent of GDP)
65%
Indicative debt ceiling
0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: FPO, PDMO and World Bank calculations and projections. 23
2. resilience for long-term growth: strong „body‟ … but more public investments are needed while disbursements of public investment plans have remained sluggish. Public Investment 700
SP2 (Others)
600
11
126
500
Billion baht
49
8 400
263
SP2 (Emergency Decree: Bt350 bn) SP1
260 SOEs
300 129
200
130
218
122 100 207
201
103
CY2008
2009
2010F
-
Local Administrative Org. CG (on-budget)
Source: FPO, PDMO and World Bank calculations and projections.
24
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. 110 100 90
Contribution of Services to GDP Growth (2001-2008 average) Share of Services in GDP (2008) Average of Contribution Average of Share
Percent
80 70 60 50 40 30 20
Source: CEIC and World Bank Calculations
25
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
26
summary: growth projections The economy is expected to grow by 6.1 percent supported by exportrelated 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
2009 GDP
Year
Q1
Q2
Q3
Q4p
63.2
-0.1
4.5
0.4
0.9
2.7
2.1
3.7
53.1
-1.1
4.0
1.4
2.0
2.0
2.3
3.5
10.1
5.8
6.9
-5.0
-4.0
6.5
0.8
5.0
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
-2.3
-268.2
137.1
260.0
88.0
-94.0
-145.6
-40.0
23,251
-4,217
1,081
Consumption Private Public Gross Fixed Capital Formation
Change in Inventories
memo: level of chg. in inventories
2010
-98,510 24,773
2010
2011
Year(p) Year (p)
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
18.5
23.4
-10.3
-4.2
2.1
7.6
-1.7
3.5
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
100.0
-2.2
12.0
4.6
5.1
2.9
6.1
3.6
Net Foreign Demand By Sectors:
GDP
Source: World Bank Projections
27
Thank you! ขอบคุณ