Quarter 2 In focus: Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.” 2019 US Debt ceiling risk crisis risk China lowered economic growth forecast to 6.0-6.5% and announced its economic stimulus package for 2019 Monitoring the impact of trade discrimination measures and the US-China trade war on Thai exports A look at India – a high-value market for future Thai exports and tourism Nonfarm payroll employment conditions Special issues:
Transcript
Quarter 2
In focus:Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
2019 US Debt ceiling risk crisis risk
China lowered economic growth forecast to 6.0-6.5% and announced its economic stimulus package for 2019
Monitoring the impact of trade discrimination measures and the US-China trade war on Thai exports
A look at India – a high-value marketfor future Thai exports and tourism
Nonfarm payroll employment conditions
Special issues:
“Economic and businessintelligence for effective
decision making”
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Thailand economy 2018
Published in Aoril 2018
Thailand’s economic outlook in 2018Box: Close watch on US trade protection measures that may impact Thailand
Box: Exploring China’s trade and investment strategies through the
Mekong-Lancang Cooperation
Thai economic outlook for 2018
Interest rates and exchange rates outlook in 2018
Summary of EIC forecasts
In Focus: The next step for Thai SMEs: capturing the CLMV market through e-commerce
Bull - Bear: Oil Prices
Highlight Private Consumption: Regional income outlook of Thai employees
Private consumption Exploring: Temporary relief through government measures despite deflating purchasing power
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4
10
22
32
34
40
48
56
60
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04Short articles on topical events
03Update and analysis of current issues a�ecting the Thai economy and business sectors
Privileges:
EIC Online o�ers in-house macroeconomic and up-to-date sectorial analyses, aiming to equip you with valuable insights for e�ective strategic planning and business execution.
In depth analysis of business issues and implications, withmedium- to long-term perspectives
Analysis of macroeconomic outlook, key indicators and business drivers.
E-mail noti�cations of EIC publications and activities
Access to past publications
Exports grew in most regions: Exports: Strong baht and US anti-trade measures to watch
Box: What you need to know to start an e-commerce business in Laos74
77
Box: E-commerce and China’s economic development
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decision making”
@scbeic
Stay connected Find us at
Thai economy 2019 46
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Contents
Global Economy 2019
Thai economy in 2019
Interest rates and exchange rates outlook in 2019
External sector of the Thai economy: Exports and tourism growth would decelerate in 2019 Box: Monitoring the impact of trade discrimination measuresand the US-China trade war on Thai exports
Bull-Bear: Oil prices
Summary of EIC forecasts
Data Analytics: Fiercer Competition, Major Challenges for Thai BusinessesIn focus: Assessing Thailand’s labor productivity“ Manageable, yet inadequate and concerning ”
44Box: A look at India – a high-value market for future Thai exports and tourism
12Box: 2019 US Debt ceiling crisis risk22Box: China lowered economic growth forecast to 6.0-6.5%
and announced its economic stimulus package for 2019
Thailand’s economic outlook in 2018Box: Close watch on US trade protection measures that may impact Thailand
Box: Exploring China’s trade and investment strategies through the
Mekong-Lancang Cooperation
Thai economic outlook for 2018
Interest rates and exchange rates outlook in 2018
Summary of EIC forecasts
In Focus: The next step for Thai SMEs: capturing the CLMV market through e-commerce
Bull - Bear: Oil Prices
Highlight Private Consumption: Regional income outlook of Thai employees
Private consumption Exploring: Temporary relief through government measures despite deflating purchasing power
6
4
10
22
32
34
40
48
56
60
70
04Short articles on topical events
03Update and analysis of current issues a�ecting the Thai economy and business sectors
Privileges:
EIC Online o�ers in-house macroeconomic and up-to-date sectorial analyses, aiming to equip you with valuable insights for e�ective strategic planning and business execution.
In depth analysis of business issues and implications, withmedium- to long-term perspectives
Analysis of macroeconomic outlook, key indicators and business drivers.
E-mail noti�cations of EIC publications and activities
Access to past publications
Exports grew in most regions: Exports: Strong baht and US anti-trade measures to watch
Box: What you need to know to start an e-commerce business in Laos74
77
Box: E-commerce and China’s economic development
Continued growth of domestic consumption following gradually improved wage and employment
Public infrastructure investment
EEC attracting foreign investors
Government measures to support low-income earners via welfare card
Pre-election campaigns and post-election economic stimulus
Slower-than-expected global economic growth
Uncertainties arising fromthe US-China trade war
Fluctuation of global financial market caused by Brexit
Impact of LTV measure on real estate market
Post-election state and the new government establishment
Ability of the new government onpolicy launching and implementation
the Thai economy in 2019 to grow by 3.6%,decelerated from global economic slowdown
and trade war impact
Source: EIC analysis based on data from CEIC, NESBC, BOT and MOC
EIC expects
EIC has revised 2019 GDP growth downward to 3.6% from the previous forecast of 3.8% to reflect lower growth in Thailand’s exports due mainly to the current global economic slowdown. Global economic growth is projected to decelerate more than previously expected and to more clearly exhibit a synchronized slowdown pattern. This is due to the US-China trade war and tightening global financial condition, especially in the second half of 2018, which continues to have a negative effect on global trade and investment. Moreover, in the first two months of the year, around 70% of Thai export markets have seen negative export growth. As a result, the EIC has revised growth in export value downward to 2.7% from the previous estimate of 3.4%. Similarly, private investment is predicted to decelerate from the end of last year, consistent with a slowdown in the export sector, global trade policy uncertainty, and post-election risks that could delay investment decisions. Nevertheless, the Thai economy still sees a boost from the tourism sector, which has shown improvement due to a faster-than-expected recovery in the number of Chinese tourists. Accordingly, EIC has revised its forecast of the number of foreign tourist arrivals upward to 40.7 million from 40.2 million, representing growth of 6.3%. In addition, public construction, consisting primarily of on-going projects, is estimated to be worth THB 760 billion this year, an increase of 7% and will be another key supporting factor this year. Private consumption is expected to expand gradually following an improvement in employment and wages as well as a boost from government stimuli. Nonetheless, durable goods consumption will likely decelerate from last year’s level due to the high base effect of passenger car consumption the previous year and the impact of a macroprudential policy aiming to curb household debt to an appropriate level.
EIC expects the policy rate to stay flat at 1.75% throughout 2019. This is because Thai economic growth tends to be slower than what the Monetary Policy Committee (MPC) previously projected. Furthermore, there are higher downside risks arising from both external and internal uncertainties. Headline inflation, moreover, remains at a low rate of only 0.7% in the first quarter of the year and is predicted to average only 0.9% this year, which is below the lower bound of the monetary policy target. This could be a key reason for the MPC to avoid hiking the rate this year. In this regard, MPC tends to use macroprudential policies as well as financial institution regulations to help alleviate specific vulner-abilities which could affect financial stability in the future, particularly household debt, which continues to accelerate faster than income, and underpricing of risks in financial investment. Regarding the Thai baht trend, it is anticipated
to stay within a range of 31-32 THB/USD by the end of 2019, appreciating from the end of last year. The key reasons for the appreciation trend include a weaker USD, a more dovish FED, and strong Thai economic fundamentals, as reflected by a high current account surplus to GDP, which is expected to be around 6.4% of GDP in 2019. However, the Thai baht may depreciate if global financial condition becomes tighter and domestic political stability weakens.
Key challenges ahead will be from external global economic uncertainty and domestic political instability. Despite good signs from trade negotiations between the US and China as well as a more dovish tone from major central banks that could benefit global economic condition in the short run, challenges to global economic growth remain, which are 1) trade tension that will continue and might escalate again because it is a structural problem, 2) global financial conditions that could tighten again, 3) high debt problems in countries, such as corporate debt in China and the US, and 4) a Brexit that would have negative impacts on the UK and Eurozone economies and global financial volatility. Political instability would be a key risk factor internally, with political uncertainty remaining high even after the recent election. As the number of parliament members of both the government and opposition parties are close, there is a high chance that the new government could be a weak coalition government implying instability and low efficiency in implementing economic policy going forward. This might bring about a delay in both investment and consumption decisions until uncertainty subsides.
EIC revises 2019 Thai GDP growthdownward to 3.6% due to export
slowdown amidst heightened global economic uncertainty and internal political risk
5Economic Intelligence Center (EIC)
Q2/2019
Global Economy 2019Growth to mildly decelerate from prolonged uncertainties
Economic Growth Inflation Rate Monetary Policy
Direction
• US and Japan’s growth likely to be more solid than that of Eurozone and China who have higher downside risks
• The labor market of major economies continues to recover with low unemployment rate.
• EM countries impacted by U.S.-China trade war
• US inflation nearing the target whereas Eurozone’s and Japan’s are furthering away from latest estimates
• Oil price likely to go down because of increase in supply especially in the US, and a slow demand in line with the global slowdown
• Fed – keeps 2019 interest rate on hold and ending balance sheet reduction. Interest rates will be increased again in 2020.
• ECB – keeps 2019 interest rate on hold and would possibly increase interest rates in 2020.
• BOJ – retains interest policy for the year and peg 10-year government bond interest rates at around 0%.
Negative Positive Decrease Increase Tight Loose
Economy Growth Forecast for years 2017, 2018, 2019
2017 2018 2019F
Unit: %YOY
JapanEurozoneUnited States China
U.S.Trade war and domestic politics including the debt-ceiling crisis.
EurozoneBrexit negotiations outcome, Eurozone politics – US tariffs on motor vehicles and parts.
U.S. tariffs on motor vehicles and parts and consumption tax hike.
Japan
ChinaTrade war with the US which will impact the industrial sector and decelerate the economy.
Risks
Source: EIC analysis based on data from foreign research institutes (Goldman Sachs, J.P.Morgan, Deutsche Bank and Bank of America)
2.3 2.41.9
6.8
2.91.8
0.8
6.6
2.21.1 1.0
6.3
Remark: Gauge indicates direction for the rest of year
Global economy continues to decelerate, especially in the manufacturing sector of the Eurozone and Emerging Markets (EMs) in Asia due to impacts from trade war while solid growth in the US and Ja-pan is likely to put the economy on a firm footing. Global economic growth is likely to expand at a slower pace because of impacts from the US-China trade war which constantly affect exports, and from increased political uncertainties in several regions including the Eurozone with the Brexit issue showing signs of prolonged negotiations. Economies of the Eurozone and China have clearly slowed down, reflected by contracted economic activities especially in the manufacturing and export sectors, as a result of both common external factors such as trade war which causes uncertainties for business planning and internal factors within the Eurozone and China. Said internal factors include the slowdown of Germany’s automotive industry and protests in France, as well as efforts to curb shadow banking and debt deleveraging in China. These are key factors to economic slowdown in both regions. However, other major economies such as the US and Japan remain relatively robust. In the US, it is expected that the government has plans for large infrastructure investment. In Japan, both the public and private sectors are likely to ramp up investment before the Tokyo Olympics 2020, and household spending is likely to be frontloaded before the consumption tax hike in October. Despite the slowdown of the global economic cycle and prolonged uncertainties, major economies are still able to expand as a result of firm labor market recovery along with accelerating wage growth which in turn supports private consumption. The monetary policy of Developed Markets (DM) has become more loose in comparison with the pre-vious quarters. The Federal Reserve (Fed) signaled the delay on a tight monetary policy by halting the policy rate increases in 2019, and ending the Fed’s balance sheet reduction by the end of September. The European Central Bank (ECB) announced additional monetary easing measures – TLTRO3 – to be effective in September, and the Bank of Japan (BOJ) still has no tendency to hike the policy rate as inflation expectations are still low. Lastly, the growth of Emerging Markets, especially in Asia, exhibits mild deceleration, resulting from slowdown in exports which stem from global trade uncertainties due to US trade protectionism measures on Chinese import tariffs (Section 301) which have been in effect since 2018, and tariffs on motor vehicles and parts (Section 232) which are still under consideration. Nevertheless, the growth of many EM countries would be driven by private consumption and public spending, mainly in infrastructure investment, to compensate for overall slowdown in exports.
EIC sees that there are 3 major risks for the global economy in 2019, namely, 1) trade war, 2) tight-ening financial conditions, and 3) geopolitical issues are still causing high uncertainty, but seem to be heading toward an improving trajectory. In the first quarter, the direction of global risks, especially those stemming from trade war and tight monetary conditions, seem to head to a more positive direction due to the efforts in trade negotiations between the US and China, the extension of temporary trade war truce and the reduced possibility of policy rate hikes of the Fed and the ECB this year. This created a relieved sentiment for the global financial market. Regarding heightened political risks especially for Brexit, despite the deadline extension from March 29, which has helped reduce the possibility of a ‘no-deal Brexit’, finding a solution that satisfies all parties is still a challenge and rather time-consuming. These uncertainties and risks are likely to affect the financial market and the business sector in the foreseeable future. Additionally, other risks, such as sanctions on Iran and Venezuela, and elections that are going to take place in many regions around the world are prone to contribute to the volatility of the global financial market.
2019 Global Economic Outlook
7Economic Intelligence Center (EIC)
Key events of the global economy in 2019
Global Risk Categoryin 2019
Economic, Financial
Source: EIC analysis and global research houses (Goldman Sachs J.P.Morgan Deutsche Bank and Bank of America)
War, Military
are 3 major risks of the global economy with high probability and
high impact in 2019
Read more in (Box: 2019 US Debt ceiling
crisis risk)Political, Geopolitical
Risk: Global Economic Risk Map 2019
Note1 2 3
2Tight monetary
conditions from Fed’s interest rate hike
1
Economic deceleration in
EM esp. in Turkey, Argentina
and Venezuela
Eurozone politics esp.Brexit conclusion
Conflict in the Middle East(Qatar) and U.S. sanctionson Iran
Financial crisis of the banking sector in the Eurozone
Negotiations to denuclearize North Korea
Economic risk from China’s economic
slowdown
3
Economic risk from US corporate debts
US debt-ceiling crisis risk
Trade war fromthe US
8 EIC Outlook Quarter 2/2019
Key Theme for Global Economy in 2nd Quarter 2019
Trade War Compromise
Delayed Brexit or No Brexit
Eurozone Slowdown
EU Politics & Anti-establishment
China Slowdown & Economic Stability
List Major Events of Global Economy in 2019
Deadline for the US president to make a decision on auto tariffs
Trump’s deadline to make a decision on auto tariffs after reports received on Feb. 17 (negotiations with trade partners are still ongoing)
May
18
US federal debt ceiling deadline
US debt ceiling extension deadline and risks of sovereign credit downgrade
Japan’s consumption tax hike
End of term European Council President Tusk
Japan’s consumption tax increase from 8% to 10%
The end of Donald Tusk’s second-term presidency at the European Council
Oct
Nov
1
30
End of term ECB PresidentDraghi
ECB’s President Mario Draghi’s term endingOct
31
Brexit extension deadline(long extension)
European parliamentary elections
European parliamentary elections, eyes on anti-establishment parties and EU’s political stability
Deadline for the UK to officially leave the EU after postponing from March 29, should a conclusion be met
May
May
22
23-26
G20 Summit in Osaka
G20 Summit – economic and trade policies direction and international relations
Jun
28-29
Brexit extension deadline(short extension)
Deadline of no-deal Brexit should the UK not come to a conclusion before April 12
Apr
12
China’s two sessions meeting 2019 (NPC & CPPCC)
China’s Two Sessions meeting and discussion on economic and monetary policies of 2019
Mar
5-15
Trump-Xi meetingConclusions of trade negotiations between
President Trump and President Xi Jinping to
end trade war
India’s general elections
India’s general elections and the effects
on the continuity of India’s economic
policies
Apr-
May
Apr 11-
Mar 19
Sep
9Economic Intelligence Center (EIC)
Global Economy
The US economy grew 2.9% in 2018. With a growth of 2.2%QOQ SAAR1
in the fourth quarter or 3.0%YOY partly contributed by the US partial government shutdown during the last 2 weeks of 2018. A quarter of federal employees and some private businesses with federal contracts to have to work without being paid by the federal government during the shutdown. This situation resulted in the slowdown of consumption reflected from retail sales in December being at its lowest in 2 years. The government shutdown’s effects continued well into the first quarter2 of 2019 and it is expected that private consumption would recover within the second quarter if the US government does not shut down again.
In 2019, the US economy to decelerate by 2.2% from slowing investments and the impacts of trade war. Retaliatory tariffs from trade partners and the slowdown in global trade, the manufacturing and exporting sectors have felt serious impact. This includes the private sector that is concerned with the uncertainly and is likely to postpone fixed investment, reflected in the decline of capital goods purchase order index since September 2018. Nonetheless, the US economy is less likely to enter an economic recession because the growth will be supported by domestic consumption. Even though the effects of the tax stimulus measures are fade, the labor market is still strong which accelerates wage growth, expanding continuously in February by 3.5%YOY, which contributes to a higher household income. Domestic consumption is key in supporting the US economy in 2019.
Fed loosens monetary policy as tight financial conditions are affecting economic growth. Fed is giving more weight to economic conditions including PCE inflation in January 2019 which slowed in line with energy prices at 1.4% lower than the 2% Fed’s target. This resulted in the Fed signaling the delay on a tight monetary policy and ending the Fed’s balance sheet reduction by the end of September. EIC expects the Fed to maintain its policy rate throughout 2019 as the Fed’s dot plot forecast in March 2019.
Trade war and the US political uncertainties could affect economy in 2019 which includes 1) negotiations to end the US-China trade war with the key aspect of this negotiation being the clarity of China’s infrastructural solutions such as, intellectual property protection and Made in China 2025 strategy, etc. EIC feels that although the negotiations are still an uphill battle, both the US and China are more inclined now than ever to find an agreement on the matter. And 2) the debt ceiling negotiations which has implications on the US’s ability to repay its debt and credibility. (Read more in Box: 2019 US debt ceiling crisis risk)
US economy
1 Quarter-on-quarter, seasonally adjusted and annualized rate.
2 Congressional Budget Office estimated the latest government shutdown to negatively affect the US economy in the first quarter by 0.2%
• The US dollar, as of April 1, 2019,
rose up in value at 1.3%YTD. The US
economic growth is likely to decelerate
in comparison to 2018 and the Fed has
signaled that it will loosen its monetary
policy. Trade war negotiations are also
making progress which results in a
weaker overview of the US dollar index
in 2019. EIC expects the Thai baht to
be stable within the range of 31-32
THB/USD.
• Thai exports to the US, with the
exclusion of weapons and military
consumables, expanded in the first 2
months of the year at 6.7%YOY. Imports
of goods that are tariffed by the US
such as washing machines and parts,
and semiconductors are recovering and
increasing at 253.5%YOY and 4.3%YOY
respectively. As for 2019’s tendency,
should the US-China trade war end,
the global trade overview would recover
which translates to healthier Thai exports
to the US.
• The US direct investment in Thailand
expanded 17.7%YOY in 2018. Moreover,
ExxonMobil has requested to invest
with BOI in the petrochemical and
chemical industries in December 2018 for
approximately THB 330 billion through
Esso (Thailand) PCL. This investment is
in effort to make Thailand its hub of the
ASEAN region. The ExxonMobil group
also shows interest in expanding its
investment in targeted industries within
the EEC region as well.
Growth stemming from stronger labor market despite political and trade war threats.
Implication for Thai Economy
EIC Outlook Quarter 2/201910
Note: FX forecast 2019 as of the end of quarter based on Bloomberg Consensus as of April 1, 2019
Note: *Nondefense capital goods excluding aircraft
HouseholdConsumption recover after the shutdown ended
US dollar index
US dollar set to weaken as economy slows.
Fed signaling the delay on a tight monetarypolicy and ending the Fed’s balance sheet reduction by the end of September.
The debt ceiling negotiations which has implications on volatility in financial market
The vote to pass USMCA in Congress
A decision of US president to impose tariffs on automotive products under section 232
3.1 2.92.2
4Q2018 2018 2019F
Retail sales
%
3.7 10
Feb
Typical
Source: EIC analysis as of April 2019 based on data from Bloomberg and Census Bureau
Capital goods orders*
Investments, reflected from machinery purchaseorder, retract stemming from the uncertainty of trade war.
%MOM
Unemployment rate
6.7-3.90.2Jan
Typical
Headline inflation(PCE)
Dec
%YOY
-1.2 4.1
Markit Manufacturing PMI
Small Business Sentiment
Industrial Production
Growth stemming from strongerlabor market despite politicaland trade war threats.
US economy
Unit: Index Unit: %YOY
www.scbeic.com
3.8
Typical
1.7
Business
Index
81.6
Feb
Typical
%YOY
8.5
56.5
108.8
-15.33.5Feb
Typical
Mar
Index
50.7
101.7
Typical
52.5
also be concerned about the US-China trade war
Link with Thai economy
%YOY(Dec18-Feb19)Tourist
arrivalsFDI
+5.6%YOY
(1Q-4Q18)
+17.1
%YOY(Dec18-Feb19)Export Import
+34.2%YOY
(Dec18-Feb19)
+53.4
USD index appreciated
USD index depreciated
Latest
Minimum and maximumof data range since 2000
neutralbetter worse
Unit
Min Max
TypicalPercentile 25-75
2019 direction
-14
-9
-4
1
6
11
16
:+�9�2ĉ�2<!�Ċ:�@!
Apr-14
Jul-1
4Oct
-14
Jan-
15Ap
r-15
Jul-1
5Oct
-15
Jan-
16Ap
r-16
Jul-1
6Oct
-16
Jan-
17Ap
r-17
Jul-1
7Oct
-17
Jan-
18Ap
r-18
Jul-1
8Oct
-18
Jan-
19
Capital goods new ordersCapital goods shipments
FX forecast Q2-19 Q4-19
95.3 92.8US dollar index
85
87
89
91
93
95
97
99
Sep-
17
Oct
-17
Nov
-17
Dec-
17
Jan-
18
Feb-
18
Mar
-18
Apr-18
May
-18
Jun-
18
Jul-1
8
Aug-
18
Sep-
18
Oct
-18
Nov
-18
Dec-
18
Jan-
19
Feb-
19
Mar
-19
Monetary & fiscal policy
Watch list
Forecast GDP (%YOY)
2019 US Debt ceiling crisis risk
The current US debt ceiling has been increased to its net debt value of USD 22 trillion resulting in the US government not being able to create new debt more than the currently set debt ceiling. Prior to now, the US temporarily suspended its debt ceiling after the agreement by both the Congress and the administration on February 9, 2018 which is a part of the Bipartisan Budget Act of 2018. Said act suspended the debt ceiling until March 1, 2019. During the suspension period, the US treasury can raise funding by issuing government bonds without limit. However, after the recent suspension expires, the debt ceiling would be automatically readjusted to the amount of debt incurred at the last day of the suspension. At present, the new debt ceiling is raised to approximately USD 22 trillion (Figure 1) equaling to the net federal debt and, thus, the government cannot issue more government bonds and other types of bills or notes exceeding the debt ceiling. Therefore, the Administration and the Congress must convene to avoid the risk of a debt ceiling crisis and the risk of the US defaulting on its debts.
Global Economy
Source: EIC analysis based on data from Bureau of the Fiscal Service and CEIC.
Figure 1: US debt ceiling continuously being raised.The US Federal debt limit
The US treasury uses extraordinary measures to find additional funding and current cash balances hold enough money for public spending only until the third quarter, causing the issue of debt ceiling to have implications on the global financial market. Currently, the federal debt level is equal to that of the debt limit on March 1 and since the Congress has yet to issue a legal raise or a temporary suspension of the debt ceiling, the US Treasury announces its use of extraordinary measures on March 4 to June 6. This gives the US Treasury the authority to decrease intragovernmental holdings such as the Government Securities Investment Fund (G Fund) which would create the ability to find more funding in addition to the tax revenue the US government is set to receive in April. The US government would then have cash balances that consist of tax revenues for spending and debt payments. The Congressional Budget Office (CBO) estimated that the US Government would have enough money in its cash balances for spending and debt payments until the end of the fiscal year or by the end of September (Figure 2). In the event that negotiations to extend or temporarily sus-pend the debt ceiling have yet to reach a conclusion, and while the extraordinary measures being used has come to an end and the cash balances no longer hold enough money for public spending and debt repayments, the risks that could be carried to the US economy and the global financial market would be as follows.
Source: EIC analysis based on data from Bloomberg
Figure 2: During the extraordinary measures, the US government only has enough money in its cash balances for expenditures until the third quarter.
US Treasury Cash Balance
Unit: USD billion
Economic Intelligence Center (EIC) 13
Global Economy
1. The US government would have to temporary reduce public spending and could lead to a gov-ernment shutdown. Once the extraordinary measures expire and the cash balances do not have enough money for government expenditure and debt repayment, the US treasury has to reduce its government expenditure. The could mean postponing salary payments of federal employees and temporarily shutting down government agencies until the government could issue new government bonds to cover its expenditure and debt payments. The government shutdown would affect federal employees and private businesses with federal contracts. This could cause a slump in consumption and certain areas of private investments which would negatively affect the economic growth of the US in 2019.
2. An increase in debt default risk could result in sovereign credit downgrade. Since the cash in the US cash balances is not enough for all government expenditure and debt repayments, or if it is only enough for parts of interest payments on government bonds, this will cause a delay of interest payments on certain government securities or even a default. Such situation would have an effect on The US credit ranking. In 2011, Standard & Poor’s (S&P) downgraded the US’s sovereign rating one notch from AAA to AA- due to increased political-related risks and the expansion of its debt ceiling. Should the US’s credit rating be downgraded again, the effect would be seen on a rise of interest rates on government securities as well as the cost of financing through corporate bonds in line with US treasury yield, and the tightening US financial conditions which would affect both the funding and the rollover of public debt and corporate bond in the US.
EIC Outlook Quarter 2/201914
EIC views the current political instability in the US as well as the debt ceiling risk could cause volatility in the global financial market, especially if the risk of rating downgrade is imminent. This might cause investors to adjust asset allocation by holding less on US government bonds because of the increased risk of price change, and more on other safe assets similar to US government bonds. This could result in a weaker US dollar since demand to hold USD denominated bonds lowers. However, investors do not have ample choice in finding alternative assets in the bond market with high liquidity that could substitute the US government bonds and the US dollar still remains the key currency in international trade. Also, it is a requirement for many central banks to hold US government bonds and US dollar as reserves. Hence, the effect on the global financial market seems to only be a short-term volatility despite the fact that the financial markets might become highly volatile.
Nevertheless, EIC sees that Congress would be able to renegotiate with the administration in either the expansion or the temporary suspension of the debt ceiling. However, the possible complication is that the uncertainty during such negotiations could cause volatility in the world’s financial market.In the past, Congress often decides to expand or temporarily suspend the debt ceiling while the dead-line is approaching. This way cause concern among investors during negotiation periods. However, to date, the US has suspended the debt ceiling temporarily for five times making the debt ceiling not a key threat to the US’s ability to create debt. The debt ceiling, however, poses as a reminder of the existence of the fiscal discipline for the US government, despite having little practical implications in reality. In this particular case, EIC sees that both the administration and the Congress have incentive to raise the debt ceiling to avoid having to repeat the partial government shutdown during the end of December 2018 to January 2019, 35 days, which is the longest in history. Both the Republican and the Democratic parties agree that no government shutdown should take place again so as not to create uncertainly for either consumers or the business sector. Because of this fact, there is a tendency that the Democratic party would support the expansion or temporary suspension of the debt ceiling in the case that there are not any conditions attached to such actions. However, if the administration makes the debt ceiling issue a part of the budget for the US-Mexico border wall, it would be harder to reach a consensus regarding the debt ceiling adjustment.
Economic Intelligence Center (EIC) 15
Global Economy
Eurozone economy grew 1.8% in 2018 with a growth of 0.2%QOQ SA in the
fourth quarter or 1.1%YOY in the latter half of 2018. Eurozone economy is
affected by many domestic factors, namely, the uncertainty of Italy’s fiscal
policy which resulted in a negative growth 2 quarters in a row (technical
recession). The slow growth of Germany’s automotive manufacturing sector
causes a slump in Germany’s economy in the third quarter and zero growth in
the fourth. The protests in France resulted in weaker consumption spending.
External factors impacting the Eurozone is the economic deceleration of trade
partners, in particular China, which has an affect to trades of member countries
as well as other trade partners continuously.
In 2019, the Eurozone economy is likely to expand at a slower pace of 1.1%YOY
as a result of the global trade slowdown. The manufacturing sector and export
orders are on a decline which is reflected in the Purchasing Managers’ Index
(PMI). PMI have shown a downward trajectory since the beginning of 2018,
with the most recent report in March, lying at 47.5, under 50 represents a
contraction. This, naturally, lowers the tendency of private investments in 2019
and allowed just minimal growth in imports. External demands will then have
less effect on the economy. Additionally, the slowdown in the manufacturing
sector will cause an even more delayed expansion in employment pressuring
labor costs to grow at a nominal rate. However, the economic recession is not
an impending risk in Eurozone since many member countries in the Eurozone
began fiscal stimulus as driving forces to support the Eurozone economy in 2019.
ECB will maintain loose monetary policy while there are fewer factors supporting
the hike of interest rates. The practice is a result of the surrounding risks and
a lengthier economic slowdown than ECB had predicted, together with the
headline inflation in March at 1.4% which is lower than the 2% ECB’s inflation
target - an impact of lower energy prices. ECB, thus, adjusted its forward
guidance on policy rates by maintaining the main policy rates at least through
the end of 2019, as well as announcing the third Targeted Long-term Refinancing
Operations (TLTRO III) this September to provide liquidity to banks and as a
monetary easing measure to support Eurozone economy.
Key risks which are affecting to Eurozone economy arise from external and
internal uncertainties which includes; 1) trade negotiations between the EU and
the US by May. If an agreement could be reached, trade uncertainties would
lighten especially in relations to import tariffs being imposed on automotive
and parts. 2) No-deal Brexit would greatly have a negative impact on the trades
between the members of the EU and the United Kingdom. And 3) the European
Parliament election that would be held during May 23-26. The increase of anti-
establishment parties could highly affect the EU’s political stability.
Implication for Thai Economy
Eurozone economy
• The Euro, as of April 1, 2019, depreciated 2.3%YTD against the USD. For 2019, if economic risks in the Eurozone lessen, in particular should trade negotiations with the US go through and a resolution be found in regard to Brexit to lessen the complications within the region’s economies, along with the weakening of the USD, the Euro will likely strengthen. EIC expects the Euro in 2019 to be at USD 1.17 per EUR.
• Thai exports to Eurozone in the first 2 months have shrunk 8.5% YOY. The main product group of exports affected are hard disk drives and automotive parts decreased at 38.7%YOY and 28%YOY, respectively. The trend of exports to the Eurozone for 2019 might be gradual in line with the slowing growth of the Eurozone economy. And risk assessments in relation to Brexit would have to be taken into consideration as well.
• Scania AB, a Swedish automobile manufacturer , announced i ts investment to build a factory for the assembly of trucks and car chassis in Samutprakarn, at approximately THB 800 million. This is Scania’s biggest investment outside of Europe and Latin America so as for Thailand to be Scania’s operation center in Asia.
Growth to decelerate from rising domestic and external uncertainties.
EIC Outlook Quarter 2/201916
Note: FX forecast 2019 as of the end of quarter based on Bloomberg Consensus as of April 1, 2019
Accelerating wage growth supporting consumption.
Euro
EUR likely to strengthen if internal uncertaintyfactors, in particular regarding BREXIT, lessen.
Announcing TLTRO in this September
Forecast GDP (%YOY)
Impact on trade and investment from Brexit uncertainty.
ECB keeps the main policy rates at least through the end of 2019
1.11.8
1.1
4Q2018 2018 2019F
Retail sales%YOY
-4.6 6.0
Jan
Typical
Source : EIC analysis as of April 2019 based on data from Bloomberg and ECB
Contribution to compensation of employees
Employment growth might decelerate slightlycausing wages to hike mainly through inflation.
%
12.17.37.8Jan
Typical
Feb
%YOY
-0.6 4.1
Industrial Production
Export
Manufacturing PMI
Growth to decelerate from rising domestic and external uncertainties.
Eurozone economy
Unit: USD/EUR Unit: THB/EUR Unit: %YOY
www.scbeic.com
2.2
Typical
1.5
Index
Mar
Typical
%YOY
24.3
9.7
60.6
-25.22.5Jan
Typical
Jan
%YOY
-21.4
Typical
-1.1
Exports are on a decline due to global trade slowdown.
%YOY(Dec18-Feb19)Tourist
arrivalsFDI
-0.5%YOY
(1Q-4Q18)
-26.4
%YOY(Dec18-Feb19)Export Import
-7.9%YOY
(Dec18-Feb19)
-22.0
47.6
Unemployment rate
Headline inflation
Compensation of employeesJobs growthReal compensation per employeesConsumption deflator
ECB keeps the main policy rates at least through the end of 2019
USD-EUR THB-EUR (แกนขวา)
-3-2-101234567
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
FX forecast Q2-19 Q4-19
USD-EUR 1.15 1.1732
33
34
35
36
37
38
39
40
1
1.05
1.1
1.15
1.2
1.25
1.3
1.35
1.4
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
Mar
-19
Euro appreciated
Euro depreciated
Household Link with Thai economy
Business Monetary & fiscal policy
Watch list
Latest
Minimum and maximumof data range since 2000
neutralbetter worse
Unit
Min Max
TypicalPercentile 25-75
2019 direction
Global Economy
Japanese economy grew 0.8% in 2018 with private investment and exports as main support growing at 3.9%YOY and 3.1%YOY respectively. However, in January 2019, Japanese exports shrunk by -8.4%YOY especially exports to China which declined -17%YOY signaling that export growth may slow this year. Slower shipment growth has led to a drop of manufacturer confidence. In February, Japan’s manufacturing PMI fell lower than 50 for the first time in 2 years.
Japan’s economy set to recover in 2019 with domestic investment as the main driving force. These include government investments related to the Olympic 2020 and natural disaster recovery, and private investment in technology to replace human labor. According to the BOJ Tankan survey, investment of Japanese corporates in fixed assets, software, and R&D will increase by 9.6%YOY in 2019, comparing to a 7.5%YOY growth in 2018. Companies in Japan are investing more in technology to cope with a labor shortage, one of the Japan’s major economic issues. Unemployment rate continuously fell to 2.4% in 2018, the lowest in 26 years while the ratio of job offers to applicant ratio rose to 1.61%, the highest in 45 years. Additionally, the government’s fiscal stimulus to alleviate effects from consumption tax hike – free pre-school education and subsidy for low-income retirees3 – would also be forces pushing Japan’s economy to grow by 1% in 2019.
Japan’s export growth will slow in line with the global trend in 2019 while the US potential tariff hikes on imported automobile and parts remain a key risk to Japan’s shipment this year. Nevertheless, Japan’s trade may get a boost from the Japan-EU EPA which took effect from February 1, 2019. Under the EPA, EU has reduced import tariff on 99% of Japanese products. Automobile parts, beef, seafood products and tea are among the products receiving immediate tariff cut while import tariff on automobile -- Japan’s main export -- will gradually be reduced to zero within 8 years.
BOJ holds a loose monetary policy amid a sluggish inflation. In March meeting, BOJ kept the short-term interest rate at -0.1% and long-term interest rate at close to 0%. BOJ also cut its inflation forecast of 2018, 2019 and 2020 to 0.8%, 1.1% and 1.5% respectively. EIC expects that BOJ will not make any significant changes to its monetary policy in 2019, especially before the consumption tax hike in October, in order to provide a continuous support to economic growth.
Japanese economy
• The yen weakened slightly by
1.2%YTD as of April 1, 2019.
However, EIC expects that the
yen will gradually strengthen for
the remainder of 2019 in line
with the regional currencies. A
weakening US dollar and Japan’s
government stimulus package
will also help strengthening the
yen.
• Thailand’s export to Japan
shrunk by -11.4% in the first two
months of 2019. Exports to Japan
tend to see a slower growth in
the remainder of 2019 in line
with the global trade slowdown.
However, exporters of auto parts
could benefit from the Japan-
EU EPA which allows Japan to
export more automobiles to the
EU.
• Japan remains Thailand No. 1
foreign investor in 2018 with 5.8%
FDI surge. Clearer progress of
EEC projects will help attract more
Japanese investors particularly
an expansion of current projects
and investment in the automotive
industry. Toyota, for example,
plans to set up a battery factory
for hybrid cars , making Thailand
its manufacturing base for EV.
Private investments surge amidstlabor shortage
Implication for Thai Economy
Tightening labor market continues
Yen
Public policy to stimulate economy pushesthe yen stronger.
Continue an expansionary monetary policyto support economic recovery
Fiscal stimulus to boost spending after the consumption tax hike
Forecast GDP (%YOY)
0.3
0.8 1.0
4Q2018 2018 2019F
Job-to-applicantratio
%SA
0.42 1.6
Feb
Typical
Source : EIC analysis as of April 2019 based on data from Bloomberg and CEIC
Note: FX forecast 2019 as of the end of quarter based on Bloomberg Consensus as of April 1, 2019
Japanese corporates’ forecast of fixed investment
Japanese companies are likely to expand investments in 2019.
Nationwide local election in April and Upper House election in July 2019
The 10-day golden week duringthe imperial transition may help boost household and tourism spending
-1.2
Retail Sales
USD-JPY
JPY appreciatedJPY depreciated
THB-JPY (RHS)
-202468
1012141618 2015 2016 2017 2018 2019
3.1
3.2
3.3
3.4
3.5
3.6
98100102104106108110112114116
Jan-
18
Feb-
18
Mar
-18
Apr-18
May
-18
Jun-
18
Jul-1
8
Aug-
18
Sep-
18
Oct
-18
Nov
-18
Dec-
18
Jan-
19
Feb-
19
Mar
-19
Apr-19
Fx forecast
USD-JPY
Q2-19 Q4-19
108110
Household Link with Thai economy
Latest
Minimum and maximumof data range since 2000
neutralbetter worse
Unit
Min Max
TypicalPercentile 25-75
2019 direction
Business Monetary & fiscal policy
Global Economy
China’s economy expanded 6.6% in 2018, the lowest in 28 years with a gradual economic slowdown since the beginning of 2018. In the fourth quarter of 2018 the economic growth decelerate to 6.4% due to progress in supply-side structural reform, deleveraging campaign and the trade war. These caused the industrial sector and investment deceleration at 6.2%YOY and 5.9%YOY. Meanwhile, the service industry still grew firmly at 7.7%YOY. The overall exports rose 9.7%YOY, partly a result of accelerated exports to the US before the tariff increase took effect.
Trade war is likely to drag China’s economic growth down to 6.3% in 2019. Exports severely declined 21.2%YOY in February because the impact of export acceleration had waned. The industrial sector is expected to decelerate even more according to the PMI index and New Export Orders index that fell below 50 continuously since the fourth quarter of 2018. Additionally, investors’ confidence has been affected due to the prolonged uncertainties of the trade war. As a result, private investment is highly likely to expand at a slow pace.
China movesw forward with economic stimulus package focusing on business sector to maintain growth target of 6.0-6.5% in 2019. Strong retail sales growth at 9%YOY, along with emerging industrial sectors and technological services that grew immensely in 2018 – proving that consumption and hi-tech industrial development will continue to be major forces of economic growth in 2019. At the Two Sessions 2019, the government announced the issuance of a tax-related stimulus package for business sectors, worth CNY 2 trillion, as well as the accelerated investment of public infrastructure, worth CNY 2.15 trillion. While PBOC is also likely to further reduce the reserve requirement ratio (RRR) of commercial banks in 2019 to induce liquidity for banks to issue loans more freely especially to SMEs, following the RRR reduction in January. China is, fully-fledged, committed to driving the economy to achieve its target of doubling per capita income in 2020 in the midst of increased uncertainties. (Read more in BOX: China lowered economic growth forecast to 6.0-6.5% and announced its economic stimulus package for 2019)
Eyes on China – Probability of the US-China trade resolution in the latter half of 2019. After trade negotiations in the beginning of 2019, China agreed to increase the purchase of agricultural products approximately USD 30 billion and energy products to lessen trade deficits with the US and both parties agreed to extend the cease-fire period which is a positive sign that the US and China could reach a resolution within the latter half of 2019. Additionally, China amended its investment laws by banning forced technology transfers and increase protection of intellectual property as well as ready to reduce the number of restrictive measures in the Negative List in 2019. However, the structural challenges of China are the reformation of business practices of private entities and state enterprises as well as the opening of its agricultural market and services sector in accordance to the US requirements.
China economy
• Yuan, as of April 1, 2019, stood at 6.7 per US dollar strengthening 3.1%YTD resulting from the trade war cease-fire. Yuan is likely to continue to strengthen due to the major economic stimulus package and progress of trade negotiations with the US
• Thai exports to China decreased by 8.5%YOY during December 2018 – February 2019 since exports of agricultural products dwindled by the lowered global prices. Also, because exports of intermediate technological products in the Chinese supply chain dropped steeply since the second quarter of 2018 stemming from US’s trade protectionism measures against Chinese technological products. Imports from China expanded only by 3.1%YOY due to lessened demand of capital goods and raw materials in February 2019. Thai-Chinese trade in 2019 is likely to not be as booming as it was in the past years stemming from major supply chain restructuring which mostly is an effect of the US-China trade war.
• China direct investment in Thailand in 2018 increased 13.4%YTD. China was ranked the second country with largest investments submitted for BOI incentives in 2018. Most investments concentrated in the machinery and electronics manufacturing sectors. Some investments aimed to diversify risks resulting from the trade war. Additionally, China started investing in Thailand’s targeted industries in the third quarter of 2018 – namely the car and electric car battery production.
Slower growth while accelerating economic stimulus packages and trade negotiations with US
Implications for Thai Economy
EIC Outlook Quarter 2/201920
Note: FX forecast 2019 as of the end of quarter based on Bloomberg Consensus as of April 1, 2019
Household consumption remains strong
Manufacturing Purchasing Managers’ Index, new orders index,and new export orders index
Manufacturing sector likely to decelerate from US importtariff measures and the dwindled accelerated export efforts.
The government increases public infrastructureinvestment and cuts business taxes worth CNY 4.15 trillion
PBOC increases the credit expansion forbusiness and SMEs alongside with strict control in shadow banking
Forecast GDP (%YOY)
6.4 6.66.3
4Q2018 2018 2019F
Unemployment%Labor force
4.3
Dec 18
Typical
Source : EIC analysis as of April 2019 based on data from Bloomberg and National Bureau of Statistics of China
Yuan
Yuan strengthened following progress in tradenegotiations between the US and China.
%YOY
Retail Sales23.34.3
8.2Feb
Typical
Consumer Confidence Index
Dec 18
Index
97.0 124.0
Fixed Asset Investment
Merchandized Exports
NBS ManufacturingPMI
Growth slowdown, focusing negotiation during The US-Chinatrade war pause
China ecnonomy
Unit: Index
Unit: CNY/USD
www.scbeic.com
3.8
Typical
123
%YOY
-26.4
Feb
Typical
Index
59.2
53.0
51.7
38.850.5Mar
Typical
Feb
%YOY
5.3Typical
6.1
ภาคธุรกิจไดรับผลกระทบจากสงครามการคา
%YOY(Dec18-Feb19)Tourist
arrivalsFDI
-0.8%YOY
1Q-4Q18
+13.4
%YOY(Dec18-Feb19)Export Import
-8.5%YOY
(Dec18-Feb19)
-2.6
Implementation of economic stimulus package
Progress of trade negotiations with the US
-20.8
Yuan depreciate
US-China 90-dayTrade war truce
Yuan appreciate
FX forecast Q2-19 Q4-19
6.73 6.7USD-CNY
4546474849505152535455 Manufacturing Purchasing Managers' Index
New orders indexNew export orders index6.7
6.0
6.2
6.4
6.6
6.8
7.0
7.2
Jan-
18
Feb-
18
Mar
-18
Apr-18
May
-18
Jun-
18
Jul-1
8
Jul-1
8
Aug-
18
Sep-
18
Oct
-18
Nov
-18
Dec
-18
Jan-
19
Feb-
19
Mar
-19
2015 2016 2017 2018 2019
Latest
Minimum and maximumof data range since 2000
neutralbetter worse
Unit
Min Max
TypicalPercentile 25-75
2019 direction
Household Link with Thai economy
Watch list
Monetary & fiscal policyBusiness
China lowered economic growth forecast to 6.0-6.5% and announced its economic stimulus package for 2019
Ending the Two Sessions 2019, China decided to lower its economic growth target to 6.0-6.5%, the slowest in nearly 30 years, amid internal economic restructuring as supply-side structural reform and deleveraging cam-paign and rising external risks and uncertainties, particularly from the trade war. As such, China announced proactive fiscal policy and prudent monetary policy in order to maintain economic growth as targeted and promote high-quality economic development. It also moves forward with trade and investment reformation to end the trade war with the US.
Fiscal Policy: China announced a comprehensive economic stimulus package by in-creasing public investment, supporting the business sector, and improving the overall people’s standard of living with the total spending of CNY 5 trillion (Figure 3). China targets a fiscal deficit of 2.8% of the GDP in 2019 to increase infrastructure investment spending, sep-arated into; the central government budget at CNY 577 billion (a 7.5%YOY increase) and the issuance of CNY 2.15 trillion of special local government bonds (a 60%YOY increase). Major investment projects include; the construction of CNY 800 billion in railways, e.g. the Sichuan-Tibet route, and the construction of roads and waterways valued at CNY 1.8 trillion as well as the construction of transportation systems and other ame-nities for inter-city transportation, civil and commercial aviation systems and IT infrastructure systems. The local government has already issued over CNY 1 trillion worth of bonds in the first quarter of 2019. (Figure 4)
Global Economy
Source: Euler Hermes, Allianz Research Source: the People’s Bank of China as of March 20, 2019
Figure 3: 2019 fiscal stimulus package worth CNY 5 trillion or 5% of the GDP
Figure 4: The local governments have issued new bonds worth over CNY 1 trillion in the first quarter of 2019.
Fiscal stimulus 2019 Local government bond issuance
Unit: CNY trillion Unit: CNY trillion
2.15
2
0.61
Tax and fee cuts for business
Government infrastructure investment
5% of GDP
0
100
200
300
400
500
600
700
800
900
Jan-18
Feb-18
Jun-18
Apr-18
Aug-18
Mar-18
May-18
Jul-18
Jan-19
Sep-18
Dec-18
Oct-18
Nov-18
Feb-19
Mar-19
2.15
2
0.61
Tax and fee cuts for business
Government infrastructure investmentOthers
EIC Outlook Quarter 2/201922
China actively supports business sector by cutting taxes and expenses at a total cost of CNY 2 trillion in order to promote the manufacturing industry and the development of small and medium enterprises (SMEs). The Chinese government has reduced tax burdens to businesses across indus-tries by lowering the value-added tax (VAT) for the manufacturing sector from 16% to 13% and for construction and transportation industries from 10% to 9%, while keeping VAT stable at 6% for the services sector but, instead, implementing tax deductions for service providers. The measures will be implemented on April 1, 2019 (Figure 5). The government also focuses on supporting small and medium enterprises (SMEs) by exempting value-added tax for SMEs with taxable income of less that CNY 100,000 per month; previously VAT was exempted for taxable income of less than CNY 30,000 per month. Corporate tax is reduced to 5% for SMEs with taxable income not exceeding CNY 1 million per year and 10% for SMEs with taxable income of more than CNY 1 million but not exceeding CNY 3 million per year, from the maximum of 20%. As for financial burden reduction, the Government is reducing employers’ social security contribution from 19-20% to 16% but will continue to maintain the benefits given to employees. The Government not only will ease financial burden but will also promote and support businesses by improving environment to facilitate business activities, among other things, reforming public utility monopoly including energy, oil, natural gass and train industries to be more market driven.
China to issue support measures to stimulate consumption and elevate people’s quality of life. As an extension of the amendment of individual income tax to increase the minimum taxable income from CNY 3,500 per month to CNY 5,000 per month in October 2018 and additional tax deductibles for expenses regarding education, health, elderly care and housing in January 2019, the Government plans to issue more measures to raise the income of citizens both in the urban and rural areas. The two key measures are; 1) development of tourism industry to be the community’s main source of income and 2) promoting domestic car purchases. Concurrently, the Government plans to raise the people’s quality of life throughout the country by ensuring access to quality products and services, particularly, for the care of elderly to accommodate the needs for care of over 250 million elderly today with the likelihood to increase in the near future, along with child care services from infants to primary school students to ensure the quality of future human resources. Moreover, the Government aims to increase over 11 million employment opportunities in 2019 coupled with a heighten quality for vocational trainings to find the sustainable solution for skilled labor shortage.
Source: Data from China Briefing: Vat Rates in China Lowered – 2019 Work Report Announcement
Figure 5: Examples of goods and services with VAT reduction in 2019
16% 13% 10% 9% 6%
GoodsSales or import of goods (except for other goods listed in 9% bracket)
Goods• Agricultural goods for farming and household consumption• Water, natural gas, and petroleum for household consumption• Building and structure of real estateServices• Traffic and transit services• Postal and telecoms services• Construction services
Services• Financial services• Research and technology services• Information technology services• Logistics auxiliary services• Authentication and consulting services• Radio and television services • Buisness support services - Food, beverage, and accomodation services - Education and medical services - Travel and entertainment services
Economic Intelligence Center (EIC) 23
Global Economy
Monetary Policy: The People’s Bank of China (PBOC) adopts a looser monetary
policy to support economic activities alongside with strict debt control.
The PBOC will continue to maintain stability within the financial sector, in particular, the control of
debt of shadow banking and inefficient businesses, while using necessary measures to boost the
credit expansion within the system in accordance with economic growth. As a result of such measures,
total social financing expanded in February 2019 after the slowdown throughout the year of 2018
(Figure 6). It is expected that the PBOC would reduce the market interest rates in 2019 and has the
propensity to further reduce the Reserve Requirement Ratio (RRR), which currently at 13.5% for large
commercial banks and 11.5% for small commercial banks (Figure 7). This would increase liquidity in
the banking sector to promote loans given out to the business sector. Especially, SMEs will receive
direct backing from state-owned banks with the aim for a 30% increase in loans. At the same time,
the PBOC announced that it will be using Targeted Medium-Term Lending Facility as another tool to
increase liquidity to the business sector and SMEs with a one-year interest rate at 3.15%, lower than
the rate on the Medium-Term Lending Facility at 3.30%. Additionally, the PBOC also has measures to
promote issuance of debentures to be the other source of funding for the business sector.
Source: the People’s Bank of China Source: Euler Hermes, Allianz Research
Figure 6: China’s total social financing accelerated in February 2019 after a continuous slowdown in 2018.
Figure 7: Policy interest rate and RRR are tools of PBOC to increase liquidity within the system.
Total Social Financing Policy interest rate and Reserve Requirement Ratio
Unit: %YOY Unit: %
9
10
11
12
13
Jan-
18
Feb-
18
Mar
-18
Apr-18
May
-18
Jun-
18
Jul-1
8
Aug-
18
Sep-
18
Oct
-18
Nov
-18
Dec
-18
Jan-
19
Feb-
19
7.475.31 6
4.35 4.35 4.35
21.5
15
20
17 17
13.5
19.5
13.5
18
15 15
11.5
0
5
10
15
20
25
Max Min Max Min Max Min
Policy interest rate
RRR: Big commercial bank
RRR: small commercial bank
2008-2012 20013-2017 20018-Feb 2019
EIC Outlook Quarter 2/201924
Trade Negotiation with the US: China moves forward to reform trade and
investment practices to express intentions in negotiating with the US.
China compromised its stance and agreed to increase imports from the US. In the trade negotiation
held at the end of February, the US maintained the tariff on Chinese products valued at USD 200 billion
at 10% whilst indefinitely postponing further trade agreements. Categories of products China agreed
to increase purchase from the US include agricultural products, i.e. soy, corn and rice valued at USD
30 billion and energy products i.e. crude oil and liquid natural gas. Moreover, it is expected that China
may consider increasing imports of semiconductor from the US which worth a total of USD 33 billion.
The increased value of US goods imports may be as much as USD 125 billion by the year 20204.
The new foreign investment law has been revised to improve business conditions of foreign investors
in China, particularly in major chapters which include 1) fair treatment of foreign businesses in China
beginning at the start of the business, acquiring business licenses, access to raw materials, business
operations, and relations with the government sector. 2) banning of forced technology transfer and
3) increased punitive measures for intellectual property infringement. This new investment law will be
effective starting January 2020, with the expectation that China will issue additional laws in regard to
business as well as reducing restricted businesses for foreign investors in its Negative List in 2019 to
liberate businesses in both manufacturing and service sectors.
The “Made in China 2025” strategy disappeared but the policy to promote high-tech industry remains.
China’s goal in becoming the world leader of technology under the strategy of “Made in China 2025”
is severely criticized by the US as the domestic technology industry is clearly being supported by the
Chinese government, a fact which the US deemed unfair to foreign businesses. Therefore, Premier Li
Keqiang avoided speaking of “Made in China 2025” directly at the Two Session 2019, however, he
reaffirmed that China would strengthen its manufacturing industry as well as support the high-tech
industry, e.g. new-age information technology, high-end tools, biopharmaceutical products and alter-
native energy vehicles with the same goal as “Made in China 2025” in mind, precisely, “Buy China”.
4 Wei, Tilton, Philips, and Taylor, Which econoies could lose from a China-US purchase agreement?, Goldman Sachs, March 11, 2019
Economic Intelligence Center (EIC) 25
Implications for Thai Economy
The slowdown in the Chinese economy, Thailand’s most important trade partner and investor, will affect
Thai economy in three major channels, namely; exports, investments and tourism.
1) Thailand’s exports to China have been continuously declining since September 2018, as severly as
14%YOY in September 2018 and 16.7%YOY in January 2019. The dwindled exports led with agricultural
products and intermediate technological products such as circuit boards and electrical appliances and
parts that are raw materials for the industrial sector (Figure 8). This shows that the US-China trade war
has impacted Thai exports especially in the case of goods whose supply chains are linked to China. As
a result of this, the influence of China’s economy on Thailand’s exports and overall economy might be
even greater once China restructures its supply chain in line with its agreement with the US to increase
imports of agricultural products and electronics and other possible products that might be added to the
agreement with the US. Such is the case because Thailand is China’s main supplier for those product
categories. (Figure 9)
2) Direct investments from China in Thailand is likely to grow due to the relocation of foreign companies’
production bases from China to avoid US import tariffs especially on targeted product categories. Thailand
has the potential to be the new product manufacturing base reflected by the country’s readiness in the
progression of different industries, including machinery production, electronics manufacturing, and ser-
vices. Multinational companies that have already announced the plans to move their manufacturing units
from China to Thailand include, for instance, Delta Electronics Power (Dongguan) and Merry Electronics,
electronics manufacturers from Taiwan with investments approximately at USD 10 million and USD 100
million, respectively, and Toshiba Machinery (Shanghai), a Japanese machinery manufacturer. Additionally,
Chinese investors are investing in Thailand’s target industries, for instance, the automobile and electric car
batteries production in the third quarter of 2018. This is resulting in the growth of Chinese investments in
Thailand at 13.4%YOY in 2018 and is expected to continue to grow steadily in 2019. However, Thailand
faces competition in attracting foreign companies who wish to move their production bases out of China,
especially competition with other members of ASEAN, namely, Malaysia which is more technologically ad-
vanced or Cambodia whose labor costs are lower. And, especially, Vietnam which has an advantage over
Thailand in the terms of trade agreements such as CPTPP and free trade with the European Union.
Source: EIC analysis based on data from CEIC Source: Goldman Sachs Investment Research
Figure 8: Thailand’s export to China continues shrinking since September 2018.
Figure 9: Thailand is one of the countries, severely affected by China’s increased imports from the US.
Thai exports to world and China Potential loss in value-added from China import shift
Unit: %YOY
Unit: % of GDP
Global Economy
-20%
-10%
0%
10%
20%
30%
40%
50%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Global
China
0 0.2 0.4 0.6 0.8 1 1.2
Japan
New Zealand
Chilie
Philippines
Thailand
Singapore
Vietnam
South Korea
Malaysia
Taiwan
Oils, minerals and crudeSemiconductor and other electronicsSoybeans and other agri productsOther categories
EIC Outlook Quarter 2/201926
QR code: Read more in Note
China Cuts 2019 GDP Growth Target to 6.0-6.5%, Focusing on All-Round Economic Stimulus and Trade Negotiation with the US
2 April 2019
3) Thai tourism might be severely affected if the Chinese economy slows beyond expected and the
Chinese government limits international travel of Chinese tourists. Thailand’s tourism industry relies
heavily on Chinese tourists at approximately 30% of all foreign visitors. Chinese tourists are also Thai-
land’s top travelling spenders. This means a risk of harsh impact should the number of Chinese tour-
ists decrease. For instance, the boat capsizing incident in Phuket in July 2018 caused approximately
12.4%YOY of Chinese tourists to cancel their travels to Thailand resulting in the loss of revenue up
to 20%YOY during July-November 2018. However, Thailand was and has remained the No. 1 travel
destination for Chinese tourists for many years. Thai tourism will still reap the benefits of the number
of tourists expected to increase in 2019 and steadily in the future as only approximately 10% of the
Chinese population at present owns a passport.
Economic Intelligence Center (EIC) 27
The governments of ASEAN 4 execute different economic policy directions to handle the economic slowdown in 2019
ASEAN4 Economy
ASEAN 4’s economy visibly slumped in 2018. With serious impact from the US-China trade war in the latter half of 2018, and interconnected supply chains with China, the production sector slowed steadily since the beginning of 2018 and exports that used to grow by the double digits have shrunken in December 2018. However, the private sector still expanded from the spending stimulus package prior to the elections in Ma-laysia, Indonesia and the Philippines. In the financial sector, the Fed rate hikes as well as the indirect impact from the financial crisis in Turkey and Argentina instilled uncertainty in investors and causing capital outflow as well as local currencies to weaken heavily especially the Indonesian rupiah and the Philippine peso. The
fiscal and monetary policies of ASEAN 4 in 2018 focused on maintaining stability of the real economy and the financial sec-tor such as the implementation of a tight monetary policy and the continuous increases of interest rates of the central banks of Indonesia and the Philippines.EIC expects ASEAN 4’s economy in 2019 to grow at a slower pace compared to the previous year with increased risks. The deceleration of the world’s economy in 2019, especially of ma-jor trade partners such as the Eurozone and China, along with
trade uncertainties both regarding the US-China trade war and the downward cycle of tech products causing ASEAN 4’s exports to continuously shrink. As well as the manufacturing sector, whose supply chains are linked to China, is likely to slump. Private investment sector is also affected by the prolonged uncertainty arising during trade negotiations between the US and China. However, consumption within the economy of ASEAN 4 will grow in line with the increase in labor costs and the lowered inflation risks as the global commodity prices dropped, especially oil prices. Additionally, the fear of capital outflow and the volatility of local currencies of ASEAN 4 minimizes as the world’s financial situation in 2019 is not as tight as expected.
The governments of ASEAN 4 execute their economic policies in different directions to handle the economic slowdown in 2019 stemming from increased external risks and the country-specific economic conditions in each country. Indonesia still retains its tight monetary policy to continuously maintain financial stability, with a focus on lessening the volatility of its rupiah. It is also keeping its fiscal deficit at -1.8% of the GDP in the fiscal year 2019 which is the same level as the previous year, a result from the slowdown of public infrastruc-ture investment. Singapore announces to increase its currency slope, which translates to a tighter monetary policy in line with the Fed’s policy. The Singaporean government announces a fiscal deficit of -0.1% of the GDP in fiscal year 2019, which is its first fiscal deficit in 3 years. It is putting emphasis on private investments to boost the country’s economy. On the contrary, Malaysia might reconsider decreasing policy rates in 2019 to stimulate the economy but still tightening fiscal policy in the forms of cancelling and postponing many rail construction projects. The Philippines has a tendency to decrease policy rates in 2019 as well as increase fiscal deficit to -3.2% of the GDP in fiscal year 2019, leading with the promotion of private consumption before the mid-term election in May. As well as, the mega project “Build Build Build” a project that focuses on the development of transportation and industrial infrastructure.
Eyes on ASEAN 4’s Fiscal and Monetary Policies to Cope with Slow Economic Growth in 2019
ASEAN4 economy
EIC Outlook Quarter 2/201928
Global economic slowdown and the US-China trade war negatively affected ASEAN 4’s exports
Domestic consumption is likely to grow inline with rising wages.
ASEAN 4’s manufacturing sector is likely to slow down in 2019, following the China’s economy.
ASEAN 4’s currencies become volatile amid global uncertainties.
Export growth
Retail sales
Manufacturing Purchasing Managers’ Index
ASEAN 4 currencies against US dollar
Unit: %YOY
Unit: %YOY
Unit: Index
Unit: Index (January 2015 = 100)
Source: EIC analysis based on data from CEIC, IMF, Asian Nikkei Review, Bloomberg, and National Bureau of Statistidcs of ASEAN 4
ASEAN 4’s economic growth will slightly slow in 2019 from rising internal and external risks.
ASEAN4 governments announced different economic policy directions to handle weaker 2019 outlook.
ASEAN 4’s GDP growth 2016-2019F
Unit: %YOY
Fiscal policy Monetary policy
Budget deficit at 0.1%of GDP in 2019
MAS ties interest rates close to Fed fund rates
Budget deficit remainssmall at 1.8% of GDPin 2019
Further rate hikes in 2019
Government infrastructure spending increases to 5.9% of GDP in 2020
Interest rate cuts in 2019
Smaller budget deficit at 3.4% of GDP in 2019 from 3.8% in 2018
Exports and FDI will continue to be the major forces to support CLMV’s economies in 2019. In Vietnam, the economy expanded by 7.08% in 2018, the highest in 7 years with an export growth of 13.2% and disbursed FDI growth of 9.1%. For 2019, CLMV economies are expected to grow at approximately 6-7%. The impact of the global economic slowdown and the trade war to the CLMV countries are limited, as FDI will continue in line with invest-ment in infrastructure and export production with preferential tax benefits such as GSP (Generalized System of Pref-erences). The tourism industry will be another force to support CLMV’s economies going forward. Cambodia plans to build 3 additional airports while Laos is co-operating with China to promote tourism under the campaign “Visit
Laos-China Year 2019”. Myanmar also announced a visa-free entry to Japanese and South Korean tourists while easing visa requirements for tourists from China, Hong Kong and Macao.
Hit by the US-China trade war, many businesses are turning their face to Vietnam especially the China-based manufacturers seeking to avoid higher US import tariffs. Electronics, apparel and footwear are among the sectors tending to invest more in Vietnam. Several companies have already decided to move their production base to Vietnam in order to avoid the trade
war. These include (1) HI Corp, a Chinese bicycle part manufacturer, (2) Hon Hai Precision, a Taiwanese iPhone assembler, (3) Zhejiang Hailide New Material, a Chinese manufacturer of polyester fiber, (4) Yokowo, a Japanese electronic parts manufacturer and (5) Goertek, a Chinese company which assembles Apple’s AirPods and are deciding to move some parts of its manufacturing base to Vietnam5.
The main advantages of Vietnam as a production base for exports are the free trade agreement with several countries and a relatively stable dong. Vietnam’s major trade agreement includes CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) which took effect in January 2019 and EVFTA (EU-Vietnam Free Trade Agreement) which is expected to be effective within the first half of this year. Both agreements are the major attractions for investments from foreign companies looking to find new production bases especially for products exporting to members of the CPTPP and the EU which would be able to utilize tax advantages of the agreements. Furthermore, the Vietnamese dong has experienced a low volatility since it is under the central bank control. Between 2017-2018, the dong fluctuated within 3% range and at the end of March 2019, the dong strengthened only by 0.1%YTD. This is considered an advantage to exporters whose profits may be affected by the currency fluctuation.
However, key challenges to the CLMV economies are the tighter global financial conditions and losing trade priv-ileges with the EU. The CLMV economies still rely heavily on foreign countries in terms of investment, trade and loans. Heavy reliance on global performance results in high external risks especially to Laos where external debt in 2018 was as high as 114% of GDP and to Myanmar who faced capital outflows in 2018 causing its local cur-rency to weaken severely. Myanmar is also at risk that the EU will withdraw trade privilege ‘Everything But Arms (EBA)’ because of the Rohingya crisis. Meanwhile in Cambodia, the EU has started the process to withdraw EBA in February, citing a sham election in 2018. EBA withdrawal could negatively affect exports and investments of both countries in the future. In the first 10 months of 2018, exports of Cambodia and Myanmar to the EU accounted for 38% and 15% of total exports respectively.
Key challenges to the CLMV economies are the tighter global financial conditions and losing trade privileges with the EU
CLMV Economies OutlookGrowth remains robust and Vietnam emerges as the FDI safe haven amid trade war
CLMV Economies Outlook
5 Data collected from various news agency such as Asia Nikkei Review and South China Morning Post
EIC Outlook Quarter 2/201930
CLMV’s economic growth remains robust through 2020.
FDI in Vietnam still expands at a high rate, led by the manufacturing sector which accounts for 50% of total FDI.
EBA withdrawals from the EU might affect Cambodia’s exports since the EU has been its major export market.
High external debt has pressured on Laos’ debt repayment ability amid rising global interest rates
CLMV’s currencies are relatively stable under the central bank control, except the Myanmar kyat which suffered capital outflows in 2018.
CLMV’s economic growth 2017-2019
FDI to Vietnam by sector
Cambodia and Myanmar’s major export markets, Jan-Oct 2018
External debt, 2017
CLMV currencies against the US Dollar
Unit: %YOY
Unit: USD billion
Unit: % of total exports
Unit: % of GDP
Index: Jan 2015 = 100
Source: EIC analysis based on data from IMF, CEIC, Bloomberg, and Vietnam’s Foreign Investment Agency (FIA)
Specific risks to each economy
The withdrawal of EBA from the EU will adversely affect apparel and footwear exports – the country’s main industry.
A slowdown in the Chinese economy – Laos’ major investor and export market.
The withdrawal of EBA from the EU and the severely weak Burmese kyat that will negatively affect the cost of imports and future investments.
Econom ic expans ion i s concentrated in foreign-invested sectors, such as manufacturing, while technology transfer from FDI is still low.
*2018’s growth of Vietnam is an actual number, the rest are forecasts by IMF WEO October 2018
7.0
6.8
6.4
7.08
6.8
7
6.8
6.56.5
7 7
6.5
กัมพูชา ลาว เมียนมา เวียดนาม
2018F* 2019F 2020F
86
88
90
92
94
96
98
100
10290
100
110
120
130
140
150
160
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
Mar
-19
Cambodia Laos Myanmar Vietnam ADXY (RHS)
Depreciated
Appreciated
21.6 20.223.4 24.4
35.9 35.5
0
10
20
30
40
2013 2014 2015 2016 2017 2018
ManufacturingReal estate and constructionW&RElectricity, gas
4933
7
65
2649
150
20
40
60
80
100
120
Laos Vietnam Cambodia Myanmar Thailand
Total external debt
Private external debt
Public external debt
114
33
Laos’ external debt level is currently higher than its peers, and about 60% are in USD
38%
23%
8%
7%
3%
20%
EU US Japan China Thailand Others
15%2%
7%
34%
20%
23%
Cambodia Myanmar
Economic Intelligence Center (EIC) 31
In 2019, the Thai economy is expected to expand at a slower rate
following global economic slowdown and US-China trade war tension
with observable impact on the export sector. While consumption
and investment sectors still continue their path towards growth
amid challenges arising from lingering political uncertainty, a risk
that should be monitored closely.
Thai economyin 2019
EIC expects the Thai economy will expand by 3.6%in 2019, moderating from the previous forecast of 3.8%. Exports fall short of expectations. While government investment momentum slightly contracts due to delays in some projects.
The Thai economy tends to grow by 3.6% in 2019, softening from 4.1% growth in 2018 as weaken exports manifest the economy. Sluggish global economic forecasts persist as US-China trade war effects become more visible. Thai export values for the first 2 months of 2019 already showed a -3.2%YOY6 decline, a rate below initial forecast, with significant implications to Thai export growth momentum in the periods ahead. For this reason, EIC is revising down export growth in 2019 to 2.7% from the previous forecast of 3.4%. Meanwhile, the tourism sector saw growth recovery as Chinese tourist arrivals slowed by only -2.2%YOY during the first 2 months of 2019, up from -9.6%YOY growth during July-December in the previous year.
Private consumption continues to grow as wages and employment gradually improve. During the first quarter of 2019, private consumption may receive boosts from government measures such as the state welfare card money transfer scheme with a budget of THB 38.7 billion in addition to private sector pre-election spending spree. However, overall private consumption growth in 2019 is projected to decelerate. Durable goods consumption, particularly of automotive is challenged by the high base effect in 2018. Other factors that are seen to lower consumption are high household debt, slowing wage growth among employees, and weakened exporters income following waning growth in the export sector.
Private investment growth momentum continues, but various risk factors loom in the background. Worries for export-related investment deceleration following sluggish export trends will be counterbalanced by solid domestic economic growth. While government investment is projected to increase by a satisfactory rate of 7%, despite delays in some projects. However, EIC believes that during the first half of 2019, investment could stay flat due to political uncertainty. Once the election process and the new government formulation is approved, investor confidence should recover in the latter half of 2019. On the contrary, if new government formulation is delayed or deemed unsuccessful, investor confidence will be deterred.
Thai economic growth continues to be challenged by internal and external vulnerabilities. External risks prevail as global economic growth prospect is seen to fall short of expectation, particularly of major markets such as China. While domestic risk factors circle around political uncertainties. Re-election talks resurface and the games of seats continue. Furthermore, many election issues are still of concern, for example, the total number of party-list seats gained after colored card penalties ranging from yellow, orange, red and black are given out, the potential of coalition government formulation, and the non-unanimous number of votes between the ruling and opposition parties. These issues will have an influence on the stability of the new government and its ability to implement policies in the periods ahead.
Outlook on Thai economy in 2019 (as of Q2/2019)
Thai economy
EIC expects Thai economic growth of 3.6% in 2019
Key forecasts
The Thai baht tends to appreciate from depreciating US dollar and solid
Thai economic fundamentals
Thai economy continues to grow, though held back by sluggish
external demand in 2019
Policy rate is likely to stay flat throughout 2019 as inflation is forecasted to remain below the
lower bound of monetary policy target
GDP (%YOY)
previous forecast as of Q1/2019
Policy rate (end of year) Exchange rate (end of year) (USD/THB)
3.62019F
4.1(3.8)(4.2)
2018
1.75%(2.0%) (31.5-32.5)
2019F
1.752018
31.0-32.02019F
32.32018
Revised down from previous forecastRevised up from previous forecast
Private Consumption
• Household income gradually recovers• Government’s economic stimulus measures• Caveats from high household debt
Private Investment
Government Consumption
• Growth according to government’s early phase of infrastructure investment and to increments in civil servant remuneration
Government Investment
• Expansion following mega infrastructure project investments in Bangkok and upcountry• Risks of delayed investments in some projects
Exports of goods*
• Growth, though at more moderate levels• Soften economic growth of trading partners• Risks from prolonged trade war
Tourist Arrivals
• Growth following Chinese tourist recovery, meanwhile, airport capacity concern arises
• Declining crude oil price trends further pressuring inflation downwards
2018 2019FUnit: %YOY
4.6
3.9
1.8
3.3
7.2
7.5
14.3
1.1
3.5
3.8
2.8
6.4
2.7
6.3
3.2
0.9
Note: *Exports and imports in terms of USD (BOP basis)Source: EIC’s analysis based on data from NESDC, OAE, FPO, BOT, MOC, TAT, and Bloomberg
US-China trade war : Implications to Thailand’s export sector Thai exports, particularly of products that are part of China’s supply chain targeted for exportto the US, already saw initial paralyzing consequences.
All eyes on Thai political uncertaintyIssues regarding the new government’s stability and ability to implement new policies remain.
(7.2)
(3.4)
(5.8)
(1.0)
(3.7)
(4.1)
( )
• Investment that benefits from government projects• Investors’ interest in EEC• Sluggish export growth suppresses export sector investment • Political uncertainty hindering investor confidence
6 Exports in USD term according to Balance of Payments basis (BOP Basis)
EIC Outlook Quarter 2/201934
EIC expects Thai economic growth of 3.6% in 2019
Key forecasts
The Thai baht tends to appreciate from depreciating US dollar and solid
Thai economic fundamentals
Thai economy continues to grow, though held back by sluggish
external demand in 2019
Policy rate is likely to stay flat throughout 2019 as inflation is forecasted to remain below the
lower bound of monetary policy target
GDP (%YOY)
previous forecast as of Q1/2019
Policy rate (end of year) Exchange rate (end of year) (USD/THB)
3.62019F
4.1(3.8)(4.2)
2018
1.75%(2.0%) (31.5-32.5)
2019F
1.752018
31.0-32.02019F
32.32018
Revised down from previous forecastRevised up from previous forecast
Private Consumption
• Household income gradually recovers• Government’s economic stimulus measures• Caveats from high household debt
Private Investment
Government Consumption
• Growth according to government’s early phase of infrastructure investment and to increments in civil servant remuneration
Government Investment
• Expansion following mega infrastructure project investments in Bangkok and upcountry• Risks of delayed investments in some projects
Exports of goods*
• Growth, though at more moderate levels• Soften economic growth of trading partners• Risks from prolonged trade war
Tourist Arrivals
• Growth following Chinese tourist recovery, meanwhile, airport capacity concern arises
• Declining crude oil price trends further pressuring inflation downwards
2018 2019FUnit: %YOY
4.6
3.9
1.8
3.3
7.2
7.5
14.3
1.1
3.5
3.8
2.8
6.4
2.7
6.3
3.2
0.9
Note: *Exports and imports in terms of USD (BOP basis)Source: EIC’s analysis based on data from NESDC, OAE, FPO, BOT, MOC, TAT, and Bloomberg
US-China trade war : Implications to Thailand’s export sector Thai exports, particularly of products that are part of China’s supply chain targeted for exportto the US, already saw initial paralyzing consequences.
All eyes on Thai political uncertaintyIssues regarding the new government’s stability and ability to implement new policies remain.
(7.2)
(3.4)
(5.8)
(1.0)
(3.7)
(4.1)
( )
• Investment that benefits from government projects• Investors’ interest in EEC• Sluggish export growth suppresses export sector investment • Political uncertainty hindering investor confidence
Thai export sector witnessed a growth of 0.2%YOY during the first 2 months of 2019, waning from the 6.7% growth in 2018. If excluding exports of arms and military weapons, growth during the two months would decelerate to -4.5%YOY. A rate signaling trade contractions among various key trading partners (Figure 10). Deteriorating global growth pressured peaking export growth during the first quarter of 2018 to drop significantly in the 3rd and 4th quarter of 2018 with effects onwards to 2019. However, slowed export momentum in Thailand corresponded with regional7 export trends (Figure 11). In a similar fashion, Thailand’s export sector was hit by the US-China trade war tensions that escalated in quarter 3, 2018. Consequently, exports of certain key products to China somewhat weakened. (Read more in Box: Monitoring the impact of trade discrimination measures and the US-China trade war on Thai exports).
Export value of all key product categories fell during the 2 months quarter of 2019. Growth of agricultural and agro-industrial products slowed from the previous year in line with export value declines in major agricultural products. Examples include falling export value of rice, cassava products, and sugar during the first 2 months of 2019 by -11.2%YOY, -10.1%YOY, and -13.7%YOY, respectively. After their meager growth in the previous quarter of 0.6%YOY, 3.3%YOY, and 9.2%YOY, respectively. Meanwhile, the industrial sector saw declining export growth as well. Key products such as motor vehicles, parts and components; chemicals and plastic; computer parts and accessories; mechanicals and parts witnessed export value declines in the first 2 months of 2019 at -6.5%YOY, -5.2%YOY, -12.1%YOY, and -7.0%YOY, respectively. Rates showing high discrepancy to their growth during the first half of 2018 at 0.4%YOY, 14.8%YOY, -1.7%YOY, and 0.9%YOY, respectively.
Thai export value by key markets and key products contracted on a broad-based level (Figure 12). Proportions of markets and products with contracting export value increased throughout the second half of 2018. Worsening figures reflected descending trends in global trade with no clear indication of a rebound. In February, markets with negative growth accounted for 71.2% of total Thai export value, compared to only 62.8% in January.
External sector of the Thai economy Exports and tourism growth would decelerate in 2019
7 Including China, Indonesia, India, Japan, Singapore, South Korea, Taiwan and Vietnam
Thai economy
EIC Outlook Quarter 2/201936
Figure 10: Exports to many key markets slowed during the first 2 months of 2019, though growth was still present in exports to the US, Japan, and CLMV
Figure 11: Thai exports started to contract after passing its peak, corresponding to trends in other Asian economies
Source: EIC analysis based on data from the Ministry of Commerce as of 21 March 2019
Source: EIC analysis based on data from the Ministry of Commerce as of 21 March 2019
Value of Thai exports during the first 2 months of 2019 – by destination
Unit: %YOY
Growth of export value of Thailand and key Asian exporters* (3-month moving average)
Unit: %YOY
Note: Europe 15 consists of Germany, UK, Italy, France, Spain, Austria, Netherlands, Belgium, Portugal, Denmark, Greece, Finland, Sweden, Luxembourg, and Ireland. ASEAN 5 consists of Singapore, Indonesia, Malaysia, Philippines, and Brunei
Note: *Key Asian exporters are China, Indonesia, India, Singapore, South Korea, Taiwan, Japan, and Vietnam
World
0.2
-4.5 excluding exports of arms and
military weapons
(100%)
The US
+51.8
+6.7 excluding exports of
arms and military weapons
(11%)
China
-9.2
(12%)
CLMV
+0.1 (12%)
Hong Kong
-13.4
(5.0%)
ASEAN 5
-2.5
(15%)
Size represents export share
Color represents export growth
Middle East 15
-11.5
(3%)
Australia
-9.7 (5%)
Japan
-5.8
(10%)
Europe 15
-8.5
(9%)
( ) % of export share in 2018
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
Jan-
16Fe
b-16
Mar
-16
Apr-
16M
ay-1
6Ju
n-16
Jul-1
6Au
g-16
Sep-
16O
ct-1
6N
ov-1
6D
ec-1
6Ja
n-17
Feb-
17M
ar-1
7Ap
r-17
May
-17
Jun-
17Ju
l-17
Aug-
17Se
p-17
Oct
-17
Nov
-17
Dec
-17
Jan-
18Fe
b-18
Mar
-18
Apr-
18M
ay-1
8Ju
n-18
Jul-1
8Au
g-18
Sep-
18O
ct-1
8N
ov-1
8D
ec-1
8Ja
n-19
Feb-
19
Thailand Singapore VietnamIndia Indonesia South KoreaTaiwan Japan China
Export value of Thailand and key Asian exporters have been slowed down
Economic Intelligence Center (EIC) 37
EIC revises down Thai export growth to 2.7% in 2019, from the previous forecast of 3.4% following lower than expected growth trends of key export markets, especially Eurozone and China. Meanwhile, Thailand’s export sit-uation worsened as trade war effects set in, particularly on Thai products used in China’s supply chain for target export to the US (Read more in Box: US-China trade war: Implications to Thailand’s export sector). As a result, export value during the first 2 months of 2019, excluding arms and military weapons, contracted by -4.5%YOY, a reduction falling below expectations. With such regards, EIC revises down export sector growth from 3.4% to 2.7%. Moreover, the situation could be exacerbated as the crude price is revised down to USD 66 per barrel from USD 70 per barrel in the previous forecast, a -7.0% reduction (Read more in Bull-Bear). As such oil -related export products, which contributes to 19% of total export value, could see weakened growth as well (Figure 13).
Figure 13: Declining global crude oil prices in 2019 reduces export price momentum among oil-related export products
Figure 12: Thai export value by key markets and key products contracted more broad-based
Source: EIC analysis based on data from the Ministry of Commerce and Bloomberg as of 21 March 2018
Source: EIC analysis based on data from the Ministry of Commerce as of 21 March 2019
Growth of Brent crude oil price and export value of oil-related products* during first 2 months of 2019
Unit: %YOY
Proportion of export markets with declining export valueUnit: % of total export
Proportion of export products with declining export valueUnit: % of total export
Note: EIC forecasts the Brent crude oil price will average at USD 65 per barrel in 2019 respectively. The ratios of chemical products, plastics, and refined oil exports to total Thai exports in 2018 were 9.4% and 3.7%, respectively.
Thai economy
7.0 6.4
37.2
70.3
0
20
40
60
80
2017 2018H1 2018H2 2M2019
14.7 14.226.9
69.5
0
20
40
60
80
2017 2018H1 2018H2 2M2019
-7.0
-60
-40
-20
0
20
40
60
80
100
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2M20
19
2019
F EI
C
Brent crude oil price
Petroleum products
Chemical products and plastics
EIC Outlook Quarter 2/201938
Monitoring the impact of trade discrimination measures and the US-China trade war on Thai exports
US trade discrimination and US-China trade war have affected the Thai economy thru international trade channels. The US trade discrimination measures surfaced during the first quarter of 2018. Initial-ly, the measure levied import taxes on 4 main product categories with implementation on 2 different timestamps. The first round of hikes impacted semiconductors (solar panels), washing machines, dryers and components, effective January 22, 2018. While the second round of hikes impacted iron, steel, and related products and aluminum, effective on March 8, 2018. Similarly, US-China trade war tensions emerged during the 3rd quarter of the same year, when the US announced import tax collection of more than USD 75 billion on Chinese goods. Consequently, international trade impact from the trade discrimination measures and the US-China trade war is as follows:
Economic Intelligence Center (EIC) 39
Figure 14: Exporting products that have received the impact from the US tariff measures dropped significantly lower than the original trend before the measure was announced
Source: EIC analysis based on data from Ministry of Commerce as of 21 March 2019
Value of Thailand export products, receiving impact from the US trade discrimination
Unit : Million USD
Notes*: The US trade discrimination measures surfaced with import tax hikes on semiconductors (solar panels), washing
machines, dryers and components, effective January 22, 2018, and iron, steel, and related products and aluminum,
effective on March 8, 2018.
Certain export products are still hindered by direct and prolonged impact from the US trade discrim-ination measures. Out of the 4 mentioned product categories, 2 categories – semiconductors (solar panels) and washing machines, dryers and components saw growth reversing to low levels, especially when compared to its upward trend before the introduction of trade barriers (as per Figure 14). On the other hand, Thai aluminum, one of the impacted categories, continued to see export increments to the US market. This was partly due to Thailand’s aluminum price competitiveness. In addition to successful negotiations between Thai aluminum makers and US leaders, allowing import tariff exemptions for each round of exports.
Thai economy
Direct impact to Thai export sector
0
50
100
150
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
0Exporting products that have received the impact from the US tariff measureTrend before the US tariff measure was announced
0
50
100
150before the measure was announced after the measure was announced
semiconductors (solar panels), washing machines, dryers, and parts
steel and products, and aluminum
EIC Outlook Quarter 2/201940
Figure 15: Thai exports of some products have been indirectly affected by the US trade discrimination policy against Chinese imports
Source: EIC analysis based on data from the Ministry of Commerce as of 21 March 2019
Growth of Thailand’s export value after the US imposed tariff on Chinese goods import
Unit: %YOY
Note: *Computers, equipment, and components affected by US trade discrimination policy against Chinese imports
beginning 6 July 2018; primary plastic and electrical circuits on 23 August 2018; rubber sheets, wood and wood products,
and chemical products on 24 September 2018.
US-China trade war tensions spilled over to Thailand’s export and import sector. Thai products hit by the tension were products that are part of China’s supply chain targeted for export to the US as they were slapped with import tariff increments.
Meanwhile, exports of certain product categories were indirectly affected by the US-China trade war. Value of Thai exports to China, especially of computers, equipment, and components, a category indi-rectly hit by the trade war, decreased by -21.7%YOY since the discrimination measure took effect or between July 6, 2018, to February 2019. Along the same lines, exports of electrical circuits dropped by -27.9%YOY from September to February 2019, after the discrimination measure took effect on August 23, 2018. Luckily, exports of plastic in primary forms continued to expand by 10.5%YOY as the imports were used to serve the Chinese domestic market. However, not long after, the US heightened trade war tensions with another round of discrimination measure effective since September 24, 2018. The aftermath caused exports of rubber sheets and wood-wood products to China to drop by -77.0%YOY and -37.7%YOY, respectively (October 2018 – February 2019), though chemicals export still expanded by 28.8%YOY. Even if tensions alleviated as the US postponed additional tariff increments on Chinese products from 10% to 25% due to become effective on March 1, 2019, signs of a prolonged trade war are still present. Still, negotiations should not be concluded within the coming periods as many issues remained unsolved, such as intellectual property rights protection and service and agricultural market liberalization.
Indirect impact to Thailand’s export and imports sector
Economic Intelligence Center (EIC) 41
Despite a more compromising attitude between the US and China in the latest round of trade agree-ment negotiations8 the faith of Thai exports remains uncertain. If China agrees to import US goods in the same category that is currently importing from Thailand, Thai exports to China in the agreed categories will drop. Official agreements on whether China will import products from the US and if so, on what product categories will need to be monitored.
The trade war not only slowed Chinese economic growth but also impacted Thai exports growth in categories unaffected by tariff hikes (Figure 16) which accounted for 67% of total Thai export value in 2018. EIC forecasts that the Chinese economy will grow by 6.3%, slightly moderating from 6.6% in the previous year.
A notable issue to keep an eye on in 2019 is the playout of substitute windfall markets from the US-China trade war. As the trade war continues and the import tariffs heighten, both the US and China starts to lower imports from the other. New import markets for the US and China then emerges to substitute for the high-priced import from the opposing party. Thailand could potentially benefit as a substitute market. However, substitute market opportunities are still unclear as importers of the 2 countries still need time to adjust to the circumstance. But once the US and Chinese importers decide to import from Thailand, prominent results will be witnessed in the year 2019 onwards. Thai sectors that could benefit as a substitute import market for China are, for example, fruits, frozen shrimp, chicken meat, copper products, whiskey, cigarettes, and animal feed. While Thai sectors that could benefit as a substitute import market for the US are electrical appliances and electronic products.
Thai economy
Figure 16: The trade war not only slowed Chinese economic growth but also affected Thai exporting products to China that are not affected by trade war
Source: EIC analysis based on data from the Ministry of Commerce and CEIC as of 21 March 2019
Real export value to China classified by products that received or not received impact from trade war, and China’s Real GDP
Unit: %YOY
8 March 2019
-30
-20
-10
0
10
20
30
40
50
60
70
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
Export products with indirect supply chain impact from trade war
Other export products not impacted by the trade war
6.2
6.4
6.6
6.8
7.0
China’s Real GDP (RHS)
before the measure was announced after the measure was announced
EIC Outlook Quarter 2/201942
Thai tourism sector growth continues upward as Chinese tourist arrivals start to recover from the Phuket boat accident in addition to increasing arrivals from Japanese, South Korean, and Indian travelers.
During the first 2 months of 2019, the tourism sector grew by 2.5%YOY, slower than 2018. Foreign tourist arrivals accumulated to 7.3 million, led by Chinese tourists with proportion accounting for 29% of the total number of for-eign tourists (drop by -2.2%YOY). Meanwhile, the number of tourists from other key markets expanded buoyantly such as tourists from ASEAN (6.8%YOY), South Korea (9.7%YOY), Japan (9.6%YOY) and India (20.1%YOY) (Figure 17). As such, income gained from tourists accrued to THB 390 billion or improved by 0.8%YOY.
Recuperating Chinese tourists’ growth will be the main driver for Thai tourism expansion. During the first 2 months of 2019, the number of Chinese tourist arrivals contracted by -2.2%YOY, after dropping by -9.6%YOY during the second half of 2018 (after Phuket boat incident). The number of Chinese tourists’ arrivals resumed partly due to government tourism stimulus measures, including visa on arrival and market expansion to various urban cities in China. Other factors contributing to the growth was, for example, traveling trend among Chinese (as evident from the growth of Chinese passport holders). Even though the number of Chinese tourist growth during the first 2 months of 2019 was not as high as the growth during the first half of 2018 (25.9%YOY), the figure illustrates that Thailand’s tourism industry is regaining its footing. This is because Chinese tourists account for as high as 28% of the total number of foreign tourists in Thailand in 2018. Moreover, the average spending per Chinese tourist per trip is higher than the average spending of a typical foreign tourist. Another important factor to consider is the changing trends of Chinese travelers, in which in 2019 Chinese tourists visiting Thailand will be more directed to self-guidance, hence facilitation in terms of communication, transportation and safety will be vital to help enhance Thailand’s position as the main destination for this group of Chinese travelers.
EIC expects the number of foreign tourist arrivals to reach 40.7 million in 2019 or an increase of 6.3%. Recovering Chinese tourist visits after the Phuket boat incident with growth continuation trends supports Thai tourism expansion. Global traveling trends further enhance Thai tourism attractiveness. Moreover, potential new growth markets are expected, especially from countries such as Japan, South Korea, and India (Read more in BOX: A look at India – a high-value market for future Thai exports and tourism). However, keep in mind that the tourism sector could be affected by sluggish global growth in 2019.
Figure 17: Despite slowing tourist arrival growth during the first 2 months of 2019, Chinese tourist recovery and high growth from Japanese, South Korean and Indian tourists support 2019 tourism sector growth.
Source: EIC analysis based on data from Ministry of Tourism and Sports, as of April 1, 2019
Growth of number of foreign tourists
Unit: %YOY
Notes: Chinese, South Korean, Japanese and Indian tourists accounted for 29%, 5%, 4% and 4% of the total number
of foreign tourist arrivals during the first 2 months of 2019, accordingly.
16.1
10.17.9
-9.6
3.1
8.1
-2.2
2.54.6
-12
-8
-4
0
4
8
12
16
20
Chinese tourist Foreign tourist (incl. Chinese)
Foreign tourist (excl. Chinese)
Average of 2016 to H1-2018H2-20182M-2019
Japanese tourist
+9.6%YOY
S.Korean tourist
+9.7%YOY
Indian tourist
+20.1%YOY
Foreign tourist (excl. China)
+4.6%YOY
Number of foreign tourists
First 2 months 2019
Economic Intelligence Center (EIC) 43
A look at India – a high-value market for future Thai exports and tourism
Thai economy is heavily dependent on export and tourism sector. In 2018, export sector contributed as high as 58% of GDP or generating revenue of THB 6 trillion, while the tourism sector contributed as much as 19% of GDP or generating revenue of THB 2 trillion. To understand export and tourism prospect, EIC uses the BCG matrix framework to analyze potential markets based on data during the recent 5 years (2014-2018). The BCG matrix evaluates 2 dimensions – rate of growth and relative market share – with output of 4 quadrants, namely 1) Star: market share higher than average with growth rate also higher than average 2) Cash Cows: market share higher than average with moderate growth 3) Question Mark: low market share but with high growth rate 4) Dog: low market share and growth rate (as per Figure 18 for exports and per Figure 19 for tourist revenue). The analysis reveals interesting findings regarding new potential markets for the export and tourism sector as follows:
Thai economy
EIC Outlook Quarter 2/201944
Export markets that are categorized in the star quadrant are US, China, and Vietnam, as these markets saw high export growth as well as high export market share. Meanwhile, other key trading partners such as Japan, Hong Kong, and Malaysia are categorized in the cash cow quadrant as their relative export market share is high, though growth rates not as high as the Stars. However, the highlight group or the potentials are the ones in the Question Mark quadrant including Cambo-dia, India, Philippines, Germany, Myanmar, and Taiwan. If Thailand can sustain high export growth to these countries and with increasing market share, then these markets can eventually move up to the Star quadrant (as per Figure 18).
2) In terms of tourist revenue generation, markets that are categorized in the star quadrant are China, US, and Malaysia. Tourist income from the Chinese market has exceptional growth, hence, resulting as Thailand’s main tourist revenue source. During the past 6 years, more than 25% of tourist revenue came from Chinese tourists. Meanwhile, other markets with high potential growth are South Korea, Vietnam, India, Laos, Taiwan, Cambodia, and Hong Kong (as per Figure 19).
Figure 18: BCG Matrix – by Thai export markets
Figure 19: BCG Matrix – by tourist revenue contribution
Average growth in 2014-2018 (%)
Average share of total export value in
2014-2018 (%)
Average share of total foreign tourism
revenue in 2014-2018 (%)
Average growth in 2014-2018 (%)
Source: EIC analysis based on data from Ministry of Commerce
Notes: Calculated from the 20 highest ranking Thai export markets in 2014-2018
Source: EIC analysis based on data from Ministry of Tourism and Sports
Notes: Calculated from the 20 highest ranking foreign tourist markets in 2014-2018
Vietnam
Hong KongMalaysia
Australia
Indonesia
Singapore
Philippines
Cambodia
India
Netherlands
Germany
South Korea
Myanmar
Laos
UK
Taiwan
South Africa
-4%
0%
4%
8%
12%
16%
0% 2% 4% 6% 8%
ChinaUS
Japan
8% 10% 12%
China
10%
15%
20%
25%
30%
35%
16% 18% 20% 22% 24% 26% 28%
Russia
Malaysia
UK
US
Australia
South Korea
Japan
Germany
India
France
Laos
Singapore
Hong Kong
Sweden
VietnamCambodia
Taiwan
Canada
Switzerland
0%
5%
10%
15%
20%
0% 2% 4% 6% 8%
Economic Intelligence Center (EIC) 45
From the BCG Matrix analysis, EIC views that going forward India will be an increasingly important market for Thai exports as well as a source for tourist revenue. The aforementioned analysis suggests that markets with high potentials for both export and tourist revenue for Thailand are Cambodia, India, and Taiwan. However, after a thorough investigation of the 3 countries’ economic data, EIC believes that India has the highest potential. India’s attractiveness lies in its massive population of 1.3 billion people in 20179 second only to China. Moreover, India’s purchasing power is rising. In 2020, Indian middle-class spending is forecasted to significantly increase to USD 1.0 trillion and to USD 3.5 trillion in 203010, placing it first on the world’s ranking chart. Furthermore, India’s overall economic growth during the last 5 years averaged at 7.3% per year, the highest growth rate in the world. IMF forecasts that the Indian economy will continue to grow in 2019 and 2020 by 7.3% and 7.7%, respectively. With this regard, EIC conducts further analysis on potential opportunities Thai businesses could gain from involvement with India both in part of the export market and of the tourist market with details as follows:
Opportunities for becoming a key export market
Data from 2014-2018 revealed that India ranked 12th among Thai export markets with export por-tion accounting for 2.6% of total export value. Key Thai export products to India were 1) Plastic and chemical products and plastic in primary forms, 2) Machinery, components and parts, 3) Electronic appliances, 4) Motor vehicles, parts, and components, 5) Rubber and rubber products, and 6) Gems and jewelry. The mentioned product categories accounted for as high as 70.8% of total Thai export value to India. About Thai export competitiveness to India, China, Japan, South Korea, and the US are main competitors. But note that Thailand’s export competitiveness remains stable as India’s imports from Thailand accounted for 31-34% of India’s total import throughout the last 5 years.
9 Data from World Bank10 Retrieved from Kharas, H. & Gertz, G. (2010). The New Global Middle Class: A Cross-Over from West to East. Wolfensohn Center for Development at Brookings. in which EIC converted the PPP USD figure to Nominal USD
Thai economy
Figure 20: Key export products to India
Source: EIC analysis based on data from Trademap
Proportion of key product exports to India per total exports to India
Unit: %
Note: Calculated from data in 2014-2018
20.2
13.2 11.88.1 6.6 5.6 5.4
0
5
10
15
20
25
Mac
hine
ryan
dpa
rts
Plas
tic a
nd p
rodu
cts
Elec
trica
l eq
uipm
ent
Org
anic
che
mic
al
prod
ucts
Mot
or c
ars,
parts
and
acce
ssor
ies
Rubb
er a
nd p
rodu
cts
Prec
ious
sto
nes
and
jewelle
ry
Competitors Chinathe US
GermanyJapan
Italy
ChinaSaudi ArabiaSouth KoreaSingapore
the US
ChinaSouth Korea
the USMalaysia
Germany
Chinathe US
GermanyJapan
Italy
ChinaGermany
South KoreaJapan
the US
IndonesiaSouth Korea
ChinaJapan
the US
SwitzerlandUnited Arab Emirates
Hong KongIsrael
Belgium
EIC Outlook Quarter 2/201946
0369121518
Optical, measuring, medicalinstruments, parts, and
accessories
Animal or vegetable fats and oils
Iron and steel
Plastics and articles thereof
Organic chemicals
Machinery and parts
Electrical machinery and parts
Precious stones and jewellery
0 4 8 12 16
Animal or vegetable fats and oils
Iron and steel
Organic chemicals
Optical, measuring, medical instruments, parts, and
accessories
Precious stones and jewellery
Plastics and articles thereof
Electrical machinery and parts
Machinery and parts
Figure 21: Thailand has the potential to manufacture various export products that are India’s key imports, however, these Thai products still have low market share in India
Source: EIC analysis based on data from Trademap as of 27 April 2019
Principal India import products from worldPrincipal Thailand export products to world
Unit: % of Thailand export value to world Unit: % of India import value from world
0.5
1.7
2.5
1.2
3.6
6.3
0369121518
อุปกรณ์ทัศนศาสตร์ การวัด และการแพทย์
ไขมันและนํ้ามันท่ีไดจากสัตว์หรือพืช
เหล็กและเหล็กกลา
พลาสติกและผลิตภัณฑ์
เคมีภัณฑ์อินทรีย์
เครื่องจักร-อุปกรณ์และสวนประกอบ
เครื่องใชไฟฟา
อัญมณีและเครื่องประดับ
0 4 8 12 16
ไขมันและนํ้ามันท่ีไดจากสัตว์หรือพืช
เหล็กและเหล็กกลา
เคมีภัณฑ์อินทรีย์
อุปกรณ์ทัศนศาสตร์ การวัด และการแพทย์
อัญมณีและเครื่องประดับ
พลาสติกและผลิตภัณฑ์
เครื่องใชไฟฟา
เครื่องจักร-อุปกรณ์และสวนประกอบ
Proportion of importing from
Thailand to importing from world
Economic Intelligence Center (EIC) 47
Thai economy
Analysis of India’s key import products revealed that Thai products reap only a small market share. Accordingly, there are rooms for export opportunities to India. Figure 22 portrays that Thailand has the capability to manufacture various products that are India’s key imports. Furthermore, the current pro-portion of Thai products imported by India is low (lower than the average proportion of each product’s import value to total import value). As such products with great export growth potentials are, for exam-ple, gems and jewelry, chemicals and organic chemicals, iron and steel, and optical, measurement, and medical appliances.
India could be a choice for Thai export market retargeting amid sluggish global economy. Currently, China is Thailand’s largest export market with exports accounting for 11.9% of total Thai exports in 2018. However, China is faced with a slowing economic growth. In addition, various Thai products exported to China are indirectly impacted by the US-China trade war. As such, India is a potential market that Thai exporters could shift focus to. Thai export categories that will be impaired from China’s economic slowdown but has potential to shift the export market to India are, for example, plastic and products, electrical appliances, and gems and jewelry, which are currently the main Thai export products to India.
Thai exporters should put more focus on products that receive tax exemptions from the Thai-India Free Trade Agreement (FTA). EIC analysis reveals that exports of 8 product groups from a total of 1511 have lower market share in India. However, the overall growth of products receiving FTA benefits remains strong. In 2017, products with FTA benefits that seized more market share accounted for 88.4% of total exports receiving FTA benefits. Furthermore, products receiving FTA benefits grew by an average of 3.5% per year throughout 2013-2017.
Figure 22: Thai exports of various products under the Thai-India Free Trade Agreement (FTA) is faced with declining market share in IndiaMarket share in the India market for Thai exports products that are exempt from taxation under the Thailand-India Free Trade Agreement.
Unit: %
11 Products that receive tax exemption under the Thai-India FTA are categorized using HS Code 2 with 6-digits accuracy
Total (11.57%)
0%
4%
8%
12%
16%
2013 2017Salt (0.01%)Inorganic chemicals (0.00%)Organic chemicals (0.00%)Precious stones and jewellery (2.45%)Iron and steel (0.10%)Products of iron and steel (3.97%)Aluminium and articles thereof (3.10%)Furniture (1.93%)
Products exported to India with declining market share
0%
4%
8%
12%
16%
2013 2017Fruit (0.43%)
Preparations of meat, of fish or of crustaceans (0.00%)
Machinery and parts (50.51%)
Electrical machinery and parts (4.77%)
Vehicles gear box (3.25%)
Measuring, precision instruments, parts, and accessories (2.75%)
Plastics in primary form (26.73%)
Total (88.43%)
Products exported to India with increasing market share
EIC Outlook Quarter 2/201948
Figure 23: Income from Indian travelers accounts for 3.3% of total foreign tourist income in Thailand, placing the country at 8th place
Source: EIC analysis based on data from Ministry of Tourism and Sports
Source of foreign tourist revenue in 2018
Unit: %
Opportunities for becoming a key source of tourist incomeCurrently, Indian tourists contribute as one of the main sources of revenue for Thailand’s tourism industry and will likely play a greater role in the periods ahead. During the past 5 years (2014-2018), Thailand is a popular destination for Indian tourists. Thailand is ranked as one of the top 3 countries Indian travelers visit the most in conjunction with Singapore and the US. In 2018, the number of Indian tourist arrivals accumulated to 1.6 million, which generated revenue of approximately THB 66 billion or accounting for 3.3%12 of total foreign tourist revenue. The mentioned figure puts India in the 8th place for countries that generate the most income for Thailand’s tourism sector. In one trip, an Indian tourist generally spends THB 42,708. Going forward, EIC believes that the number of Indian tourist arrivals will continue to increase following population and economic growth. As such, there is a high tendency that India’s position will be lifted and placed in the Star quadrant for top countries generating the most income for Thailand’s tourism sector.
Travelers from secondary Indian cities are seen to be on the rise. The Thai government led by the
Tourism Authority of Thailand (TAT) sees potential in second-tier states in India due to high population
growth with sizable portions of middle-class individuals. TAT targets to expand its overseas offices
to reach second-tier states such as Ahmedabad, Pune, Amritsar, and Bhubaneswar. Furthermore, this
year, TAT will take the Amazing Thailand roadshow to the mentioned cities. With this reason, Thai
businesses should be prepared to accommodate the increasing growth of inbound Indian travelers
both with familiarity to Thailand and new to Thailand.
Diversification of tourist destinations among Indian travelers is another trend to consider. According to
information from TAT, the main destinations of Indian travelers are Bangkok, Phuket, and Pattaya. In
2019, to prepare for significant growth of inbound Indian travelers, TAT is planning to diverge Indian
travelers from main tourist destinations to cities with potential to accommodate Indian tourists such
as Nakhon Sri Thammarat, Ranong, Chumphon, Rayong, Chanthaburi, Trad, Chiang Mai, Chiang Rai,
and Ayutthaya (with additional provinces to be determined).
12 2018 figure
China, 29%
Russia, 6%
Malaysia, 6%USA, 4%
South Korea, 4%
India, 3%
Others, 34%
China
Russia
Malaysia
USA
South Korea
England
Japan
India
Australia
Germany
Others
Economic Intelligence Center (EIC) 49
In order to attract Indian tourists, a thorough understanding of traveling behaviors and patterns is
required. EIC found that Indian travelers mostly spend on these items in descending order; accom-
modation, shopping, food and drinks, and entertainment (as per Figure 24). Going forward, tour-
ism-related businesses should be prepared to facilitate the needs of Indian travelers. TAT’s tourist
survey, which focuses on traveling behaviors of high-value13
Indian tourists , reveals that this group
of tourists spends twice as much money than the average tourist. They enjoy shopping while travel-
ing, items worth mentioning are clothing (73.25%), food, and souvenirs. Furthermore, factors that this
group of travelers considers when selecting traveling destinations are diversification of attractions,
good weather, attractive promotion packages, and interesting culture and way of life.
Businesses should consider product and service improvements in order to venture into India’s ex-port market and attract Indian travelers. Fundamentally, businesses should understand the needs of Indian customers and their traveling behaviors. Furthermore, to increase export potential, businesses should understand and monitor news regarding international trade tax exemptions both of existing, such as the Thai-India FTA, and ones in the future.
13 High-value tourists are classified as follows: ages above 18 with residency and registration in India, visited a foreign country (any country) at least once during the last five years, associated to a socio-economic class (comparing to the average proportion by country) of C+ and above
Figure 24: Indian travelers mainly spend on accommodation, shopping, food and drinks, and entertainment.
Source: EIC analysis based on data from Ministry of Tourism and Sports
Tourism receipts from international tourist arrivals by expenditure item
Unit: %
Thai economy
THB 42,708 per
person per trip
EIC Outlook Quarter 2/201950
Nonetheless, maintaining growth in existing export and tourism markets is also important.
Diversification of dependent markets with continual and stable growth will help strengthen Thailand’s
fundamental sectors. The export sector should maintain competitiveness by controlling product qual-
ity, standards, and costs, while for the tourism sector safety issues cannot be overlooked.
Economic Intelligence Center (EIC) 51
Latest data from quarter 4 of 2018 suggested that Thai investments expanded by 4.2%YOY, causing overall investment in 2018 to increase by 3.8%, a rate significantly higher than the previous year at 1.8%growth. Government investment growth resumed to expansion at 3.3% in 2018 after dropping by -1.2% in the previous year. Meanwhile, private sector investment continued to grow by 5.5%YOY during the last quarter of 2018, which resulted in an overall growth of 3.9% in 2018, marking a 7-years high growth rate since 2012.
Private investment is forecasted to grow by 3.8% in 2019, a rate on par with 2018, though with increasing vulnerabilities. Although sluggish export sector growth has a high impact and correlation with investments, the Thai economy should continue to expand and drive investment growth. However, when compared to the previous forecast, investment growth is clouded with increasing uncertainties as will be discussed in the next section.
Prospects of expanding public investment drive private investment growth. Figure 25 illustrates that government investment in the construction sector should increase by 7% from investments in general projects and mega infrastructure projects. In 2019, most of the megaproject investments will be for the rail system (Figure 26) such as for Electric trains, dual-track railways, and high-speed rail. However, the satisfactory 7% was revised downwards from the original forecast of 9% due to delays in land expropriation in existing projects such as Bang Yai-Kanchanaburi Intercity Motorway Project and delays in new projects auctions such as the High-Speed Railed Linked 3 Airport Project.
Figure 25: EIC expects public construction to grow by 7% in 2019 following investments of ongoing infrastructure projects
Source: EIC analysis based on data from NESDC and Ministry of Transport
Forecasted of public construction value categorized by type of project
Forecasted new and on-going government transportation mega projects value
Unit: THB billion Unit: THB billion
Figure 26: Most of the megaproject investments in 2019 are for the development of rail systems, such as Electric Trains, dual-track railways, and high-speed rail
Source: EIC analysis based on data from Ministry of Transport
On-going projects (million baht) New projects (million baht)
Electric Train
Orange line (Thailand Cultural Centre - Min Buri)
110,117
Electric Train
Pink line (Khae Rai - Min Buri) 56,691
Electric Train
Yellow line (Lad Phrao -
Samrong) 54,644
Dual Track 5 routes (1st phase) 100,528
Electric Train
South Purple line(Tao Poon - Rat
Burana) 131,000
Dual Track 9 routes (2nd phase) 398,700
High Speed Rail
HSR linked 3 airports(BKK - Rayong) 247,102
Economic Intelligence Center (EIC) 53
Thai economy
Figure 27: Investors preference for EEC investments remains strong
Source: EIC analysis based on data from BOI
Investment amount applied for BOI promotion
Unit: million baht
As for the investment situation in special economic zones namely for EEC, investors preference for EEC investments remains strong. According to statistics from BOI for 2018, the value of BOI promotion requests in the EEC area grew significantly by 137%, outpacing the country’s overall growth of 43%. In the dimension of registered capital, sectors with the highest registered capital in the EEC area were real estate, construction, and restaurants. Of the mentioned investments, the Japanese contributed more than 50% of total investment in the area followed by Singapore, China, US, and South Korea.
However, various uncertainties hindered investment growth:
1) Higher than expected impact from the trade war. Even if the US postponed Chinese import tariff hikes during the latest round of US-China trade negotiations, impact to Thailand’s export sector could be higher than previously anticipated. For example, if China agrees to import certain products from the US that China originally imported from Thailand, then Thai exports will dwindle and in turn hurting investments for the export sector as well. 2) Delayed government investment disbursements in infrastructure projects. Further delays in government investment could impact the progress of infrastructure development and cause the private sector to postpone investments accordingly.
3) Macroprudential measures used to determine Loan-to-Value (LTV) might slow housing construction investments by more than initially expected. EIC views that the LTV measure will have limited impact on residential construction investments in 2019, as investments in 2019 should go according to previously launched projects, which were unaffected by the new LTV measure. However, going forward, the measure will have a high impact on residential projects, especially ones planning for launch in 2020-2021. However, the situation should be closely monitored as the impact of LTV could be higher than previously forecasted.
Overall EEC
EIC Outlook Quarter 2/201954
Figure 28: During early 2019, investments in the construction and equipment dropped significantly from 2018 year-end
Source: EIC analysis based on data from Toyota Motors Thailand, Bank of Thailand, and Office of Industrial Economics
Construction indicators Equipment investment indicators
Unit: %YOY Unit: %YOY
4) Uncertainties surrounding the election. Investment hold up should be witnessed as investors continue to be in wait-and-see mode throughout the first half of 2019. Figure 28 portrays that investment indicators both of construction investment and machinery investment significantly slowed from the end of 2018. If the election proceeded peacefully, investors’ confidence should return and positively impact investments during the latter half of 2019. On the contrary, if the opposite is true, investments could be further postponed. Furthermore, issues regarding the new government’s economic policy direction is another important factor that needs to be closely monitored.
Notes: Cement sales include Portland and mixed, Concrete sales represented by ready mixed concrete, and Imports of capital
goods excluded special items with high value but unpredictable timeline such as aircrafts, ships, locomotives and rigs (government-
owned or private rental) in order to reflect normal investment environment
Private sector consumption growth trend continues but at a slower rate
In 2018, private consumption grew by 4.6%, accelerating from the previous year’s growth and representing the highest growth rate in 6 years. Durable goods consumption led the growth with automotive consumption expanding by 12.9% and home decor products by 7.6%. Service consumption grew as well, for example, consumption of transportation, communication, and hotel and restaurants expanded by 5.2%, 6.2% and 5.0%, respectively. Meanwhile, consumption of non-durable goods merely grew, such as food and non-alcoholic beverage consumption increased only 2.0%. However, since the 4th quarter of 2018 onwards, private consumption momentum has changed with slowing trends of automotive consumption. During the 4th quarter of 2018, automotive consumption growth slowed to 8.5%YOY from average growth of 14.5%YOY during the first 3 quarters of 2018. The slowing growth reflected a slowdown after periods of accelerated consumption since 2017. Meanwhile, consumption of non-durable goods growth prospects has improved. For example, consumption of food and non-alcoholic drinks grew by 2.4%YOY in quarter 4 versus only 1.9%YOY growth in the first 3 quarters of 2018. Part of the improvement stemmed from economic stimulus measures imposed during late 2018, such as the welfare card money transfer scheme for low-income individuals.
While in early 2019, private consumption growth should continue, albeit at a slower rate. According to Private Consumption Index published by Bank of Thailand, private consumption grew by 5.0%YOY during the first 2 months of 2019, escalating from 4.5%YOY in the 4th quarter of 2018. The expansion was in line with growth of non-durable goods and services. On the other hand, durable goods and semi-durable goods saw consumption slightly decelerating from the 4th quarter of 2018.
EIC evaluates that in 2019, private consumption will continue to grow by 3.5%. Albeit lowering growth from the previous year, 2019 predicted growth rate is still satisfactory, compared to the average growth rate of only 2.7% per year during the past 5 years (2014-2018). The trend is supported by rising nonfarm household income from wages that increased by 2.0% in 2018 and by 1.7%YOY during the first 2 months of 2019. Meanwhile, in the same period, employment improved by 1.1% and 0.8%YOY, respectively. Sectors with high employment growth include industrial, construction, logistics, and hotel and restaurants. These sectors hold the fate of 13.1 million employees. Going forward, employment rates should continue to grow. Furthermore, some economic stimulus policies would still be in effect in the first quarter of 2019. Take, for example, the welfare card money transfer scheme, which has a total budget of THB 38.7 billion. This measure will ease the spending of 14.5 million low-income individuals benefiting from the scheme.
Various factors suppress potential private consumption growth among low- and medium-income individuals. For low-income individuals, depressed agricultural prices restrain spending growth. During the past year, agricultural price index dropped by -5.7% before growing slightly by 0.6%YOY during the first 2 months of 2019. With shrinking prices, related individuals in the agricultural sector received lower profit. These individuals were further handicapped by high household debt at 78.6% of GDP (as of Quarter 4, 2018), a ratio increasing from 77.9% in the previous quarter. Hence, these macro indicators suggest limiting spending capabilities for this group of individuals. Meanwhile, for medium-income individuals, low consumer confidence pressures spending growth. According to the University of the Thai Chamber of Commerce (UTCC) consumer confidence index, during quarter 1 of 2019, the index rose slightly to 81.1 from 80.4 in the previous quarter. The rise reflected a recovery in the tourism market and temporary benefits from economic stimulus measures. However, the aforementioned increasing rate still registered under 100 (Figure 29), representing weak consumer sentiments, an event likely stemmed from recent political uncertainties. Still, prospects of slowing durable consumption growth are present. For example, the main laggards are slowing growth of passenger car products (6.2% of total private consumption) from frontloaded consumption growth in the previous year and of furniture and home decor products (5.9% of total private consumption) following slowed real estate demand, a consequence of macroprudential policies taking effect in the second quarter of 2019. EIC views that sluggish durable goods consumption will be the main factor contributing to lower overall consumption growth.
EIC Outlook Quarter 2/201956
Figure 29: Consumer confidence slightly improved from quarter 4 of 2018 following recovering tourism growth and economic stimulus measures. However, the figure is still below 100, partly due to lingering political uncertainty.
Source: EIC analysis based on data from the University of the Thai Chamber of Commerce
Consumer confidence index (CCI)
Unit: index, above 100 means more confidence
In the latter half of 2019, the new government’s policy direction will determine the course of private consumption growth. In the present, it is hard to predict what types of policies will be established after the election, whether regarding household income such as agricultural prices or minimum wages. EIC views that measures such as minimum wage hikes will not be implemented in 2019, as it will need time for businesses to adjust beforehand. If minimum wage increments do occur, negative impact to businesses should be considered, particularly among SMEs as they have limited abilities to bear increasing costs, especially when compared to large corporates. Furthermore, SMEs are in relatively weak positions, from the rising bad debt. Another factor to closely monitor is the continuity of economic stimulus measures, especially of the welfare card money transfer scheme and other welfare measures, as these policies will be key to the consumption of low-income persons.
Overall CCI CCI: present job CCI: future job CCI: income CCI: future income CCI: willingness
to buy new car
CCI: willingness
To buy new house
Economic Intelligence Center (EIC) 57
Thai economy
Nonfarm payroll employment conditions
In 2018, the labor force saw an increase of employed persons by 1.1%, a rate coinciding with un-employment to total labor force ratio of 1.1%, lowering from the average 1.2% in 2017. However, employment growth proceeded from rising non-employee persons (3.3% expansion in 2018), with the majority from the agricultural sector. The sector’s expansion could result from 1) escalating agricultural prices in 2018 2) employee being laid off and 3) employee chose to leave the job due to a low wage growth and had to return to the agricultural sector. At the same time, the growth of employed persons contracted (-1.5% in 2018), especially among nonfarm payroll employees with a deceleration of -1.6% growth (Figure 30).
EIC Outlook Quarter 2/201958
Waning hiring among Small and Medium Enter-
prises (SMEs) slowed nonfarm payroll employment
growth In 2018, SMEs saw a decline in employed
personnel of -1.9%. On the contrary, large corpo-
rates employed 0.7% more employees. For SMEs,
categories that saw the highest drop in hiring
was daily employees with -5.4% growth. While,
for corporates, monthly employees saw slight
contractions of -0.2% growth. Despite lowering
employment rates, wages of SME employees rose
by 3.0%, an expansion significantly higher than
the overall increase of nonfarm payroll employees
at 2.0%. With this regard, lowering employed SME
personnel could be a result of either cost reduction
or company dissolution. The latter is probable, as
according to information from the Department of
Business Development (DBD), during the past 5
years (2014-2018) SMEs’ exit rate14
has increased
continuously, an average of 5.9% per year, higher
than the exit rate of large companies that grew an
average of 1.2% per year.
Figure 30: The number of employed persons contracted in 2018, particularly nonfarm payrolls, though in accordance with rising wages
Source: EIC analysis based on data from NSO as of April 1, 2019
Employment and monthly wage of employee (excl. overtime pay)
Unit: 3MMA, %YOY
14 Exit rate is calculated from DBD’s company database by dividing the number of dissolved businesses with the total number of businesses in that particular year
Notes: The number of employees contributed to 45.4% of the total number of employed persons, 3.6% from farm
payroll and 41.6% from nonfarm payroll. Nonfarm payroll employees were mostly hired by SMEs (26.2% of the total
number of employed persons)
-5
-3
-1
1
3
5
1 4 7 10 1 4 7 10 1 4 7 10
2016 2017 2018
Employment of employee
Monthly wage of employee
Employment
Monthly wage
-0.3%YOY
+2.0%YOY +0.4%YOY +2.0%YOY
-0.6%YOY -1.5%YOY
+1.1%YOY
Total employment
-1.5%YOY
Employee
-0.3%YOY
Agriculture
-1.6%YOY
Non-agriculture
+0.7%YOY
Employed by large corp.
-1.9%YOY
Employed by SMEs
+3.3%YOY
Non-employee
Employment 2018
-5
-3
-1
1
3
5
1 4 7 10 1 4 7 10 1 4 7 10
2016 2017 2018
Employment of employee
Monthly wage of employee
Employment
Monthly wage
-0.3%YOY
+2.0%YOY +0.4%YOY +2.0%YOY
-0.6%YOY -1.5%YOY
-5
-3
-1
1
3
5
1 4 7 10 1 4 7 10 1 4 7 10
2016 2017 2018
Employment of employee
Monthly wage of employee
Employment
Monthly wage
-0.3%YOY
+2.0%YOY +0.4%YOY +2.0%YOY
-0.6%YOY -1.5%YOY
-5
-3
-1
1
3
5
1 4 7 10 1 4 7 10 1 4 7 10
2016 2017 2018
Employment of employee
Monthly wage of employee
Employment
Monthly wage
-0.3%YOY
+2.0%YOY +0.4%YOY +2.0%YOY
-0.6%YOY -1.5%YOY
Economic Intelligence Center (EIC) 59
Thai economy
Figure 31: In 2018, employees saw overall compensation increments from the same period of the previous year. Salary increments were especially prominent among construction, automotive and parts manufacturing, and wholesale and retail sectors.
Source: EIC analysis based on data from the National Statistical Office as of April 1, 2019
Notes: *Other service sectors include real estate services, communication and telecommunication services, and
other services. Other manufacturing sectors include building materials manufacturing, chemicals and raw materials
manufacturing, steel manufacturing, apparel manufacturing, and other manufacturing.
On average, employees working in the man-ufacturing and service sectors received wage increments in 2018, especially those working in high growth sectors. Example sectors include construction (6.4%), automotive and parts man-ufacturing (3.1%), wholesale and retail (2.9%), and hotel and restaurant (2.8%), all of which provide wage increments higher than the overall rate of 2.0% (Figure 31). Employees in the man-ufacturing industry reaped benefits from both increasing wages and increasing employment. As a result, manufacturing employment grew by 1.2%, reverting to expansion from average de-clines of -0.7% per year during 2013-2017. On the contrary, the service industry saw employ-ment contraction of -2.8% in 2018, particularly from the hotel and restaurant sector (-3.9%).
The size of the heatmap reflects the number of nonfarm payroll personnel in each industry, while the color intensity reflects the magnitude of 2018 salary increments.
Figures in parentheses represent (proportion of employment in each industry to total nonfarm payroll hires, %YOY of 2018 wages)
Though nonfarm payroll faced declining employment rates, the overall labor market outlook in 2018
was still satisfactory, reflected by employment return to growth and increasing average wages. During
the first 2 months of 2019, average wages grew by 1.7%YOY, such improvement reflects continual
labor market upswings. EIC expects that, in 2019, Thai household income will gradually improve
and help support household consumption growth. However, various fragilities with direct impact to
income linger throughout the second quarter of 2019 including sluggish exports, tourism growth with
uncertainties of returning to soaring rates as before the Phuket boat incident, domestic investment
from public and private sectors, and shrinking working hours of nonfarm payroll (-1.4% in 2018). The
aforementioned factors could pressure wage growth of nonfarm payroll employees in 2019. Nonethe-
less, consequences arising from government revenue stimulating policies, especially ones relating to
minimum wages, need to be monitored as they can positively impact wages but negatively impact
employment.
Economic Intelligence Center (EIC) 61
Interest rates and exchange rates outlook
in 2019
Policy rate
At the Monetary Policy Committee (MPC) meeting on March 20, 2019, the Committee unanimously voted to hold the policy rate at 1.75%. The MPC saw that although the expansion of Thai economy has been close to its potential, there has been a deceleration from the growth projection. Accordingly, the MPC has trimmed the 2019 economic growth forecast. Key factors include Thai exports, public consumption and public investment which have been growing at lower-than-anticipated rates. Thailand’s exports growth decelerated due to global economic slowdown, electronic cycles and effects from US-China trade tension. In terms of domestic factors, public investment projection has been cut partly due to the delayed investment by some state-owned enterprises. For headline inflation, the MPC still kept the projection at 1% for 2019 (at the lower bound of the inflation targeting range). The increasing energy and fresh food prices have compensated the effects from core inflation which fell below the rate projected earlier. Nevertheless, with the current growing uncertainty in both global economy and domestic market, the MPC has made a decision to keep the policy rate unchanged while comprehensively monitoring the economic development.
EIC expects the MPC to keep the policy rate unchanged throughout 2019 as the inflation could fall below the Bank of Thailand’s targeting range of 1-4% and the risks affecting Thai economic growth are growing. EIC anticipates less chance for the policy rate raise in 2019 as the MPC has become less optimistic and cut the economic growth forecasts. Moreover, the MPC is unlikely to hike the policy rate this year as headline inflation has potential to dive below the target range, following the energy price which has a tendency to fall below 2018 prices. In case of the delay in policy rate raise, the MPC will focus on using microprudential and macroprudential policies to ensure the stability in the financial system.
The overview of Thailand’s financial condition and Thai government
bond market
Thailand’s financial condition in the first quarter of 2019 has eased from the previous quarter as short-term Thai government bond yields remained steady and close to the policy rate. Meanwhile there was a significant decline in long-term Thai government bond yields due to Fed’s and the MPC’s more dovish policies, and low inflation rate. For private fundraising, corporate bond issuance remained ample though the cost of issuance (corporate yields) has increased slightly. The stability of Thai baht remained intact regardless the higher volatility in the recent year.
Short-term Thai government bond market
Short-term Thai government bond yields hovered around the policy rate due to capital outflows from short-term Thai government bond market and bond switching scheme. (Figure 1) As of March 29, 2019, the 1-year Thai government bond yield was at 1.79%, slightly over 1.75% of the policy rate. Partly it was a result of capital outflows from short-term Thai government bond market. (FIgure 2) On the same day, the 3-month Thai government bond yield was at 1.69%, faintly below the policy rate. It was due to the vote 7-0 by the MPC to hold the policy rate, which influenced the market to re-forecast the short-term rate adjustment. Also, the movement in short-term government yields was a reaction from bond switching activity of the Public Debt Management Office (PDMO).
Policy rate and Thai government bond yields
Interest rates and exchange rates outlook in 2019
EIC Outlook Quarter 2/201964
Figure 32: Short-term Thai government bond yields moved along the policy rate partly due to the capital outflows from the government bond market and the dovish views on policy rate.
Figure 33: Since early 2019, there have been over 40 billion baht of capital outflows from Thai government bond market.
Source: EIC analysis based on data from Bank of Thailand, and Thai BMA.
Source: EIC analysis based on data Thai BMA.
Policy rate and short-term Thai government bond yield
Unit: %
Thailand bond flows
Unit: billion
Note: data as of 29 March 2019
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
Mar
-19
1 year 3 month 6 month TH policy rate
-80
-60
-40
-20
0
20
40
60
80
100
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
Mar
-19
Economic Intelligence Center (EIC) 65
Interest rates and exchange rates outlook in 2019
Figure 34: Long-term government bond yields declined slightly from the beginning of the year due to the US government bond yields, low oil prices and the slowing Thai economic growth.
Source: EIC analysis based on data from Bank of Thailand, and Thai BMA.
Long-term Thai government bond yields and Long-term US government bond yields
Unit: %
EIC expects that by the end of 2019, short-term Thai government bond yields will remain steady along the policy rate although the supply of short-term Thai government bonds may somewhat decline. EIC anticipates the MPC’s policy rate pausing to play a key role in keeping the short-term Thai government bond yields stable in 2019. EIC projects that the Bank of Thailand is unlikely to decrease short-term bond issuance if Thai baht does not rapidly appreciate further from the current stage. As a result, there should be no factors that pressure the short-term Thai government bond yields to significantly decline; unlike the case in the first quarter in 2017 which the Bank of Thailand decreased the short-term bond issuance and the short-term government bond yields fell sharply below the policy rate. In terms of bond switching, the activity may slightly reduce the supply of short-term Thai government bonds in the market, making the short-term government bond yields drop below the policy rate in some periods of time. Accordingly, EIC projects 1-year Thai government bond yields to be between 1.65% - 1.85% by end of 2019.
Long-term Thai government bond marketThe yield for long-term Thai government bond slightly dipped from the beginning of 2019 due to decreased US Treasury yields, low oil prices and deceleration of Thai economy. (Figure 3) The yield of 10-year US Treasury bonds continued to decline from the 4th quarter of 2018 in response to a concern over the US economic slowdown and a downward of inflation rate projection following the global oil prices. Moreover, since early 2019, the Fed has been showing signs of more dovish moves; maintaining policy rate throughout 2019 and adopting patient approach to further rate hikes. The US Federal Reserve even announced the coming end of balance sheet reduction in September 2019. Being affected by the circumstance as well as the investor’s concern over the global economic downturn, the 10-year US Treasury yield shrank to 2.40% (on March 29, 2019) from 2.71% at the end of last year. As for the 10-year Thai government bond yields, the ongoing downfall was mutual. With the influence from the long-term US Treasury yields, the MPC’s more dovish moves, lower economic growth forecast and Thailand’s low inflation rate in the first quarter of 2019, the Thai government bond yield fell to 2.43% (on March 29, 2019) from 2.48% at the end of 2018.
EIC Outlook Quarter 2/201966
Figure 35: The nominalization of Fed’s balance sheet which will end in this year may reduce the liquidity in the financial market at a degree lower than previously expected.
Note: *Including all maturity
Source: EIC analysis based on data from Federal reserve bank and Congressional Budget Office
US Treasury securities held by Fed
Unit: USD billion
Looking ahead, EIC expects the long-term Thai government bond yields to pick up by the end of 2019 following the US Treasury yields, Thai economic growth and the supply of Thai government bonds which all have potential to edge up. Factors influencing a surge in the US Treasury yields are 1) With the Fed turning more dovish and the risk of US economy slowdown becoming lower, the investors’ concern over tightening financial condition in 2018 is likely to resolve, leading to risk-on sentiment in the market. Moreover, the rising employment rate should as well increase inflation rate projection further. 2) The nominalization of Fed’s balance sheet and the end of assets purchases program under the ECB’s quantitative easing (QE) will reduce liquidity in the global financial markets and the demand for long-term US Treasury bills. As a result, the term premium of the long-term US Treasury bills will likely increase. In terms of domestic factors, Thai economy has good potential to expand further, leading to strong investor confidence and risk-on sentiment. Moreover, with the PDMO’s fund-raising plan to issue new long-term Thai government bonds worth 600 billion baht in 2019 which is higher than the 2018 level of 580 billion baht, an increase in the long-term Thai government bond yields is likely to happen.
However, the long-term Thai government bond yields may not grow very significantly due to the minimal rise of the US Treasury yields, the regional capital inflows, and Thailand’s inflation projected to be steady. EIC expects the long-term US Treasury yields to increase at a small scale in response to the following factors 1) There’s a concern over the risks affecting the economic growth and inflation rate. Also with the oil prices being low, the inflation expectation would not rise much. 2) the Fed is likely to hold the policy rate in 2019, and 3) The nominalization of Fed’s balance sheet which will end this year may reduce the liquidity in the financial market at a degree lower than previously expected. As a result, liquidity premium will not increase much, and the effect of the balance sheet normalization on the rise of the US Treasury yields will minimize. This differs from the past which the Fed went for the assets purchases program (QE) and achieved a significant liquidity premium decrease as a boost of market liquidity was conducted at a large scale and a great speed (Figure 4). Therefore, the Fed’s policy moves in 2019 is anticipated to only gradually increase the term premium. Moreover, EIC expects capital inflows to return to the region in this year as the confidence is deemed to improve and the global financial condition is likely to ease up from last year. From such, the Thai government bond market will as well be benefited. Finally, Thailand’s inflation expectation may not elevate much as Thai economic growth tends to decelerate, labor market slack still remains, and oil prices seem to steady. This circumstance may limit the increase of Thai government bond yields. EIC forecasts the 10-year Thai government bond yields to be between 2.6% - 2.8% by the end of 2019.
0
500
1000
1500
2000
2500
3000
Jan-
05
Sep-
05
May
-06
Jan-
07
Sep-
07
May
-08
Jan-
09
Sep-
09
May
-10
Jan-
11
Sep-
11
May
-12
Jan-
13
Sep-
13
May
-14
Jan-
15
Sep-
15
May
-16
Jan-
17
Sep-
17
May
-18
Jan-
19
Maturing in over 1y to 5y Maturing in over 5y to 10y Maturing in over 10y Total*
Economic Intelligence Center (EIC) 67
Recent development of the exchange rates
In the beginning of 2019, Thai baht strengthened up further from 2018. It was due to the decelerating
appreciation of US dollar and Thailand’s strong external stability which has led to Thai baht being perceived
as regional safe haven currency. (Figure 1) US dollar index on March 29, 2019 was at 97.28, an appreciation of
0.9% from beginning of 2019, lower than 4.4% appreciation in 2018. The weakening trend was fueled by 1) the
US economic growth showing signs of a slowdown. (Figure 2 left) 2) the US Federal Reserve’s expansionary
monetary policy in responding to growing internal and external economic risks (Figure 2 right) and 3) the
increasing political tensions including the government shutdown and unsettling trade war. Thai baht also has
been affected by other currencies. In 2019, Chinese yuen has returned from critical depreciation period in 2018.
With improving trade war situation, the Chinese currency has slightly strengthened and therefore hasn’t further
pressured Thai baht to devalue. Additionally, the recent global financial market fluctuation has played a part in
Thai baht appreciation. The high volatility has led to risk-off sentiment among investors, creating the demand
for safe haven assets or currencies of high external stability. As a result, the demand for Thai baht has grown
significantly. The appreciation of Thai baht has been consistent to the appreciation of Japanese yen and the
rising gold prices; the other safe haven assets. (Figure 3)
Interest rates and exchange rates outlook in 2019
Outlook for Thai baht
Figure 36: During early 2019 Thai baht continued its strengthening trend from last year significantly from US dollar’s decelerating appreciation and Thailand’s strong external stability
Figure 37: Thai baht is being valued as safe haven asset. The recent development of Thai currency has been consistent to Japanese yen and gold prices.
Figure 38: US dollar’s decelerating appreciation was a result of the US economic slowdown and Fed’s expansionary monetary policy
Source: EIC analysis based on data from Bloomberg and JP Morgan
Source: EIC analysis based on data from Bloomberg
US and European economic growthUS dollar index and Expected rate differential between Fed and ECB
Unit: %QOQ, SAAR Unit: Index Unit: %
USDTHB Index USDJPY Index and Gold price Index
Unit: Index (7d MMA)
-3
-1
1
3
5
Mar
-14
Aug-
14
Jan-
15
Jun-
15
Nov
-15
Apr-16
Sep-
16
Feb-
17
Jul-1
7
Dec
-17
May
-18
Oct
-18
Mar
-19
Aug-
19
US and European economic growth differential
US GDP growth
Europe GDP growth
8
0.5
1
1.5
2
2.5
3
85
90
95
100
105
Jan-
16
Apr-
16
Jul-1
6
Oct
-16
Jan-
17
Apr-
17
Jul-1
7
Oct
-17
Jan-
18
Apr-
18
Jul-1
8
Oct
-18
Jan-
19
Apr-
19
DXY
Expected rate differential between Fed and ECB (RHS)
90
92
94
96
98
100
102
104
106
108
Jan-
18
Feb-
18
Mar
-18
Apr-
18
May
-18
Jun-
18
Jul-1
8
Aug-
18
Sep-
18
Oct
-18
Nov-
18
Dec-
18
Jan-
19
Feb-
19
Mar
-19
USDTHB Index USDJPY Index Gold price Index
Economic Intelligence Center (EIC) 69
Interest rates and exchange rates outlook in 2019
There have also been domestic factors which resulted in Thai baht’s appreciation, including US dollar selling
by Thai gold traders, an increasing number of international tourists in Thailand, and some other short-term
factors which have raised the demand for Thai baht. With the recent soaring gold price, gold investors in
Thailand have been selling gold in US dollars in order to exchange the incomes to Thai baht and realize the
profits. Additionally, Thailand’s growing number of inbound foreign tourists in December 2018 has enhanced
the country’s trade balance. As a result, the demand for Thai baht escalated. There were also some short-term
factors namely the need for large enterprises to sell US dollars gained from their overseas investments in order
to pay dividends in Thai baht. This type of doing has immensely boosted up the demand for Thai baht in late
January, causing the value of Thai baht to rapidly appreciate. In terms of the effect of the policy rate hike in
December 2018 on the baht, EIC assessed that the impact has been limited. From our analysis, the difference
between Thai policy rate and the US policy rate has minimal influence over the value of Thai currency. Although
the Thai policy rate has been increased, the real interest rate remains low at 0.45%, close to the US real interest
rate which was 0.24%. (Figure 4)
Figure 39: The real policy rate of Thailand is low at 0.45%, which is still close to the real fed fund rate, which is approximately 0.24%.
Source: EIC analysis based on data from Bank of Thailand Consensus economics and Federal Reserve Bank
US and TH real policy rate
Unit: %
Exchange rate outlook
EIC forecasts that by the end of 2019, Thai baht will appreciate against US dollar and become stronger than
the year before mainly due to the US currency which may remain steady or devalue slightly. EIC expects the
US dollar index to depreciate slightly from 2018 based on the following reasons 1) the Fed is likely to make a
more dovish turn in its policy making in the near future. Recently, market participants have projected Fed to
decrease the policy rate in 2019 and 2020 whereas Fed’s dot plot has indicated a steady rate for the rest of
2019 and one hike in the year after, and 2) The US economy which has expanded beyond its potential, could
slow down as the US financial condition has tightened in 2018 and the fiscal policy to boost the economy is
less likely to happen this year. In terms of Chinese yuan, EIC expects the currency to appreciate if the trade
war is resolved in the second half of 2019. In the first quarter of 2019, the US-China trade situation showed
signs of improvement. Likewise, it is expected that President Trump would make more compromising moves in
the coming phases in order to politically re-strategize towards the US presidential election in 2020. The stronger
Chinese yuan as a result could influence Thai baht to appreciate. Considering the domestic factors, EIC expects
-2.0
-1.5
-1.0
-0.5
0.0
0.5
Mar
-12
Oct
-12
May
-13
Dec-
13
Jul-1
4
Feb-
15
Sep-
15
Apr-
16
Nov-
16
Jun-
17
Jan-
18
Aug-
18
Real fed fund rate Real TH policy rate
EIC Outlook Quarter 2/201970
Figure 40: Thailand’s current account surplus will remain high at about 6.40% per GDP while capital flow is likely to return to Thai capital market, leading to growing Thai financial account.
Source: EIC analysis based on data from Bank of Thailand and Bloomberg.
Source: EIC analysis based on data from Bloomberg
Thailand balance of payment and USDTHB
Unit: USD million (6 months aggregate)
Thailand to remain with high current account surplus at about 6.40% per GDP in 2019. The supporting factors
are the expansion of Thai exports, the return of Chinese tourists to Thailand (Figure 5), and the capital flow
toward EM, as a result of risk-on sentiment and relatively low P/E ratio compared to historical level. (Figure 6)
Thailand’s stock market is thus likely to benefit from this trend, earning back some capital flow. As a result,
Thailand’s balance of payment should then improve and the demand for Thai baht may rise further. EIC expects
the value of Thai baht to be within a range of 31-32 baht per US dollar by the end of 2019. However, if the Fed
increases the policy rate higher than expected by the market, US-China trade war escalates, Thailand faces a
current account surplus at a level much lower than projected, or an unexpected domestic turmoil takes place,
the value of Thai baht can be weaker than anticipated.
Unit: % Change of currency compared to 6 months ago
-16%-13%-10%-7%-4%-1%2%5%8%11%14%
-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
Sep-
17
Dec-
17
Mar
-18
Jun-
18
Sep-
18
Dec-
18
Current account balance Capital account Financial account
Net errors and omissions Overall balance USDTHB (RHS)
10
11
12
13
14
15
16
17
800
850
900
950
1000
1050
1100
1150
1200
1250
1300
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
Mar
-19
EM stock index P/E ratio
P/E ratio avg. 10y = 14.21
Economic Intelligence Center (EIC) 71
BULL-BEAROil Price
Bull-Bear Oil Price
Bull - Bear Oil Price
*Annual baseline average crude oil prices estimated by EIC
**Annual baseline crude oil price ranges estimated by 5 leading global houses (as of February 14, 2019)
BULLs BEARs
• Oil supply will likely decline in accordance
to an agreement of OPEC producers and
allies to cut oil production by 1.2 million
barrels per day during the first half of 2019. In
January 2019, OPEC reduced the production
by 800,000 barrels per day to 30.8 million
barrels per day, compared to a month earlier.
Saudi Arabia made the largest cut at 350,000
barrels per day, leading to the production
volume of 10.2 million barrels per day which
exceeded the agreed downsizing scale by
almost 100,000 barrels per day. The country
plans to further cut its oil production down
to 9.8 million barrels per day in March.
• The U.S. boycott against Petróleos de
Venezuela (PdVSA), the main financial source
of President Maduro’s government, could
lead to declining Venezuela’s oil exports,
particularly to the U.S., its key trade partner.
Since the sanction has been imposed in late
January, more than 20 Venezuelan oil tankers
have been stranded off the U.S. and floating
in the Gulf of Mexico. EIA reported that oil
exports from Venezuela to the U.S. in early
February plunged by 240,000 barrels per day,
a 41% decrease compared to late January.
• U.S. crude oil production continued to rise. In 2018, the U.S. oil production hit 11 million barrels per day. The volume grew by 1.6 million barrels per day or 17%YOY, a record high, making the U.S. the largest oil producing country in the world. EIA projected the U.S. to increase its oil production volume to 12 million barrels per day in 2019. • The demand for oil in 2019 from the U.S. and China, the world’s largest and second-largest oil consuming countries respectively, is likely to grow at a slower pace due to the economic slowdowns and trade war tension. EIA expected the demand for petroleum oil from the U.S. and China in 2019 to be at 20.8 million barrels per day (2%YOY) and 14.3 million barrels per day (3%YOY) respectively, decelerating from the demand growths in 2018 which were at 3% and 4% respectively.
Crude oil price (USD/Barrel)
2017
(Average) Average Q1 Q2 Q3 Q4 Average Q1 Q2F Q3F Q4F Average Range*
EIC’s view Q2/2019 : BullCrude oil prices will increase slightly in the second quarter of 2019. The key factor is the deal of OPEC countries and allies to take 1.2 million barrels per day off the market. OPEC’s largest oil producer Saudi Arabia has announced that it would additionally cut oil production by 500,000 barrels per day, on top of the output cut of 320,000 barrels per day agreed earlier, in order to downsize its production volume to 9.8 million barrels per day. Moreover, global oil supply will be tight due to geopolitical factors significantly the case of Venezuelan oil exports ban. With the prolonged political conflict, it is possible the U.S. would impose more sanctions against Venezuela.
In 2019, an average price of Brent oil will decrease from a year earlier. Increasing oil supply in the U.S. will likely compensate the supply cut under OPEC deal due to end in June 2019. The U.S. crude oil production reached a record high in 2018, replacing Saudi Arabia as the largest oil producing country of the world. With highly advanced hydraulic fracturing technology for shale oil and geographical advantages, the U.S. has earned itself significant oil reserves. EIA expected the U.S. to be able to reach the oil production volume of 12 million barrels per day in 2019, 10%YOY growth. Furthermore, the demand for oil in 2019 is estimated to slowdown along the global economic growth which is projected by IMF to grow at 3.5% this year.
Nevertheless, it is recommended to keep a close watch on any upside risks. The OPEC-alliances agreement on oil supply cut due to end in June 2019 could be extended to December 2019, leading to swelling oil prices.
Source: EIC analysis based on data from EIA and OPEC
Crude oil production volume of the U.S. and Saudi Arabia
Unit: thousand barrels per day
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan-
14
Apr-
14
Jul-1
4
Oct
-14
Jan-
15
Apr-
15
Jul-1
5
Oct
-15
Jan-
16
Apr-
16
Jul-1
6
Oct
-16
Jan-
17
Apr-
17
Jul-1
7
Oct
-17
Jan-
18
Apr-
18
Jul-1
8
Oct
-18
U.S. Saudi arabia
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan-
14
Apr-14
Jul-1
4
Oct
-14
Jan-
15
Apr-15
Jul-1
5
Oct
-15
Jan-
16
Apr-16
Jul-1
6
Oct
-16
Jan-
17
Apr-17
Jul-1
7
Oct
-17
Jan-
18
Apr-18
Jul-1
8
Oct
-18
สหรัฐฯ ซาอุดีอาระเบีย
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan-
14
Apr-14
Jul-1
4
Oct
-14
Jan-
15
Apr-15
Jul-1
5
Oct
-15
Jan-
16
Apr-16
Jul-1
6
Oct
-16
Jan-
17
Apr-17
Jul-1
7
Oct
-17
Jan-
18
Apr-18
Jul-1
8
Oct
-18
สหรัฐฯ ซาอุดีอาระเบีย
75Economic Intelligence Center (EIC)
Fiercer Competition, Major Challenge for Thai Businesses
DataAnalytics:
With technology progressing in virtually all aspects, the everyday lives of people have become, as a result, much more comfortable. However, for business owners, this might mean that doing business is not as easy as it was before. One important reason is that businesses are facing much fiercer competitions.
Data Analytics: Fiercer Competition, Major Challenge for Thai Businesses
Data Analytics
EIC has analyzed data of over 1.5 million Thai businesses in the past decade and has found that businesses are facing 2 dimensional challenges from the heightened competition, namely; 1) increasing number of new players in the market and 2) market leaders who are becoming increasingly better, reflecting higher market concentration. 1) Higher new business expansion than economic growth In 2017, there were 74,000 new businesses, an increase in comparison to 41,000 new businesses in 2009 – or an average of 7.7% increase per annum – a number higher than the economic growth rate of the same period calculated from the nominal GDP which stood at 6.1% per year. This indicates that new business expansion rate is higher than that of the economy, which translates into an increase in players in many fields of businesses; with only the exception of hotel and restaurant business having fewer new players than the increase in GDP in that sector (Figure 43). However, in the instance of hotel and restaurant business, the actual market competition maybe higher than what is reflected in the increase in new businesses since certain companies might expand their branches under the same company name, especially big players.
EIC Outlook Quarter 2/201978
2) More market shares, in various industries, are concentrated in large corporations. Comparing industry over-views between the years 2009 and 2018, Thai business environment has become more concentrated i.e. the ratio of revenue of the 10 highest earning companies have risen in proportion to the industry revenue. The number of industries with increased market concentration stood at 199 out of 295 industries, or an equiva-lent to the ratio of 67% (Figure 44). This is in line with the phenomenon occurring in the US, that 2 out of 3 businesses across 850 industries have increased in market concentration in comparison between the years 1997 and 2012. The phenomenon arises from companies performing so efficiently that they beat out compet-itors and dominate most market shares . EIC sees that this condition will result in more vigorous competi-tions for SMEs especially in those industries that small business operations must compete directly with large corporations. One example is retail business which displays increased market concentration characteristic in recent times. A part of the reason for this condition was due to branch expansion by major players in other provinces of the country, which takes the market shares away from SMEs. As a result, non-performing loan ratio of SMEs in retail sector doubling from 3.2% in the 4th quarter of 2013 to 6.4% in the 3rd quarter of 2018 while for large-scale businesses holding low at 0.4% and 0.8% respectively during the same time period.
A clear example is a coffee shop business, which EIC found that it holds the characteristics of the vigorous competition in the two dimensions mentioned above. In the past three years, the number of new companies being registered increases steadily at an annual average of 11%, especially in the Bangkok Metropolitan area – with coffee shops over 8,000 shops, found on Google Maps and Wongnai.com, reflecting relatively high competition of the industry15. Additionally, the coffee shop business also has very high market concentra-tion, emulated by the two Thai coffee shop market owners; Starbucks and Café Amazon, with total sales of approximately 69% of the market’s total sales in 2017, rising from 45% in 2014 – a 23% growth in sales per year comparing to 4% sale growth per year of other coffee shops during the same period of time (Additional Info: Data Infographic “Hey, shall we open a coffee shop?”). This is in line with the increase in the degree of market concentration in 2017 when compared to 2009 of the retail business of non-alcoholic beverages which includes coffee shop business.
15 The number can still be underestimated because there could be many operators who have yet to register with those online services or have not registered as a juristic person, e.g. kiosks or stands selling drinks including coffee. Furthermore, there are coffee shops that are disguised within other types of shops, e.g. restaurants, co-working spaces which also compete with coffee shops.
Economic Intelligence Center (EIC) 79
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
SMEs' exit rate Large corp's exit rate
2013 2017
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
SMEs' NPL ratio Large corp's NPL ratio
2013 2017
Data Analytics
Note: *Exit rate is the share of the number of discontinued firms to the total number of firms in that year.
Source: EIC analysis based on data from BOT and DBD
Figure 42: The increase in both SMEs’ exit rate and NPL ratio is higher than those of large firms in 2017 when compared to 2013Exit rate* by business size NPL ratio by business size
Unit: %total firms Unit: %total loan
EIC views that with the increased competition, SMEs are facing even more difficulties. The increasing exit rate and non-performing loan ratio of SMEs, which deteriorated more than that of large corporations (Figure X), had effects on the overall economy through the employment rate of SMEs that decreased significantly in the past several years. Furthermore, there are other factors affecting SMEs as well, especially the wide-impact “technology disruption” which benefitted some and impeded others. The benefits go to those who can under-stand and are willing to adapt. With these reasons in mind, SMEs owners should always be alert and ready to adapt to intense competitions and the ever-changing business environment. Entrepreneurs must familiarize themselves with the business they intend to invest in and changing consumer behavior while utilizing tech-nology which has become widely available and cheaper to build a strong edge for their businesses which are becoming more important given increasing challenges these days.
EIC Outlook Quarter 2/201980
Note: *This article studies 295 industries from 976 existing industries. These industries were selectedfrom industries with more than 100 players and report non-missing revenues.
Source: EIC analysis based on data from DBD and NESDB
About 67% of Thai industries have become more concentrated. This might put a challenge to SMEs indoing their businesses, especially for an industry in which SMEs have to compete directly with large firms.
Large firms have higher market share in many industries
Unit: change in market share of the top 10 highest earning firms in 2017 compared to 2009
โตตอไมรอแลวนะ
Growth of newly registered firms is higher than GDP growth
Figure 43: The increase in number of newly registered firms is higher than nominal GDP growth
Figure 44: Various industries have become more concentrated
In the past 8 years, the number of newly registered firms grew faster than economic growth in many sectors, reflecting fiercer competition from increasing number of competitors.
Unit: average annual growth during 2009-2017 (%)
6.0 7.7
4.9 5.9
4.9 5.4
7.0 8.7
5.5 11.8
13.6 12.1
Production
Overall
Construction
Wholesale & retail
Hotel & restaurant
Real estate services
Nominal GDP Number of newly registered firms
Fiercer Competition, Major Challenges for Thai Businesses
Data Analytics:
1.5
1.0
0.5
0
-0.5
2009 2017
More concentrated
67%
33%
Less concentrated
Example
Retail sale of telecommunication
equipment
Retail sale of non-alcoholic
beverage
Retail sale of furniture
Wholesale of coffee, tea,
and cocoa
Retail sale of alcohol beverage
Sale of motorcycle
OutlookQ2/2019In Focus
Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
Thailand’s labor force has been in continued decline because of the aging population, which leads to a fall in the country’s potential growth. Therefore, to ensure a satisfactory rate of economic growth, migrant workers, especially high-skilled, can be brought in to boost the labor force. However, migrant workers can only provide a short-term fix, because when they eventually leave, the economy will suffer. Thus, it is necessary that labor productivity of Thai workers must be improved at the same time, so that they can make up for the declining workforce. As a result, this study provides a thorough assessment of the current situation with regard to Thailand’s labor productivity.
ManageableRecent Labor Productivity Growthdoes not decreasecompared to theprevious period,stand at 4% a year.
without an improvement inlabor productivity, Thailand’seconomy will have less potential to expand and it would take 30 years or more for escaping middle-income trap to become ahigh-income country.
yet inadequate
ConcernsWithin-sector
productivity is decreasing
4.0%
2003-2007 2011-2015
3.9%
0.9%
3.0%
1.3%
2.6%
Productive labor relocation is increasing
But the sum of within-sector
productivity growthis decreasing
High-productivity workers account for
only a small portion of Thailand’s workforce.
The allocation of Thai human and capital resources is inefficient
Within-sector productivity is decreasing.Reflecting low development of labor
productivity within each sector, which is a concern for
future labor productivity progression
Most of Thai workers are concentratedat low-productivity level, while in developed
countries, labor productivity is more distributed. This structure might imply that most of Thai labor are low-skilled, likely to adapt slowly going forward.
Using production efficiency as a criterion, EIC finds that agriculture sector has too much labor, while transportation and communicationsector has too much capital.
If resources are redistributed efficiently, TFP will rise instantly by 20%,leading to an increase in GDP and shorter time for Thailand to escape middle-income trap.
Labor productivity calculated widely could be overestimated
as migrant workers are excluded from the calculation.
With migrant workers included, labor productivity would drop 4%
Assessing Thailand’s labor productivity:
“Manageableyet inadequateand concerning.”
Country-level
Firm-level
Invest in infrastructures both in physical
and ICT infrastructures reduce monopolistic competition and
support just competition
Foster appropriate level of competition
Short-term subsidy policies should be
used in combination with long-term solutions
Hold regular and effective staff trainings
Exploit data analytics for creating business
opportunities and reducing costs
Physical investment
Improve education quality and eliminate skill mismatch problem in the labor market
Increase productive investment
ICT investment because it is an important
ingredient for advancing firm productivity
Invest in R&D for creating
innovations for the future
Approaches for future laborproductivity
development
Assessing Thailand’s labor productivity“Manageable, yet inadequate and concerning”
Summary
Our study finds that the current condition of Thailand’s labor productivity is considered “manageable”, since the average annual growth in labor productivity in the current period (2011-2015) remained com-parable to the period earlier (2003-2007). Nevertheless, this rate of growth is still “inadequate”, as it was unable to support a satisfactory rate of economic expansion. In EIC’s view, without an improvement in labor productivity, Thailand’s economy will have less potential to expand and it would take nearly 30 years or more for Thailand to escape the middle-income trap and become a high-income country.
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
EIC Outlook Quarter 2/201986
ConcernsAlthough the current conditions of labor productivity remain manageable, several concerns are worth pointing out. These include: 1) Labor productivity calculated widely could be overestimated, as migrant workers are excluded from the calculation. – Labor productivity estimated in most studies only include Thai workers. However, in reality, the share of migrant workers in the Thai labor market is quite significant (statistics from 2011-2018 show an average of as much as 1.53 million migrant workers in Thailand, or around 4% of overall employment.) As a result, including only Thai workers will lead to overestimated per capita labor productivity. If migrant workers were to be included, per capita labor productivity would be lower. Based on data from 2011- 2018, when migrant workers are included in the calculation, per capita productivity falls from 250,064 baht to 240,253 baht per year, or equivalent to a 4.1% drop. Also, labor productivity growth declines from 3.1% to 2.8%.
2) Within-sector productivity is decreasing. – If overall labor productivity growth is decomposed into 1) labor productivity growth in each sector (within-sector productivity) and 2) labor movements from low-pro-ductivity sectors to high-productivity ones (labor-relocation), it can be seen that labor productivity growth during 2011-2015 resulted from an increase in labor relocation growth (compared to 2003-2007 figure). However, the sum of sectors’ within-sector productivity had been in decline. This is a major concern , because the scope for labor relocation in the future is limited by many constraints, such as the inability for low-skilled workers to move to high-skilled jobs, and the skill mismatch problem. Given the limit to pro-ductive labor relocation, within-sector productivity growth is unavoidably the key to improving overall labor productivity in the country.
3) High-productivity workers account for only a small portion of Thailand’s workforce. EIC’s study shows that Thai workers’ productivity level is lower than developed countries’ level. Moreover, most workers in developing countries including Thailand are concentrated at low-productivity level and only a small share of workers has a high productivity. Unlike in developed countries, labor productivity of labors is more distributed.Such labor market structure can become a constraint for economic development in the future, because a large share of low-productivity workers reflects limited skills or education of these workers. Thus, in the event of abrupt technological change, they may not be able to adjust, hindering economic development going forward.
4) The allocation of human and capital resources is inefficient. – Efficient resource allocation requires allocating resources to sectors that can produce the highest output using the constrained resources, or in other words, sectors with the highest productivity. Our study shows that resource allocation remains ineffi-cient in many sectors.
With regard to human resource allocation, EIC finds that agriculture sector has too many workers. Therefore, it should be developed to improve its productivity, leading to lower number of workers required. Labors who exit from agriculture should be relocated to some high-productivity sectors such as manufacturing, wholesale and retail and transportation& communication sector. While in angle of capital allocation, utilities and transportation&communication sector have too much capital, reflecting that those sectors are inefficient in using capital to produce goods or services. If these resources are redistributed appropriately based on each sector’s efficiency, TFP will rise instantly by 20%. This means higher GDP growth, and shorter time until Thailand escapes middle-income trap.
Economic Intelligence Center (EIC) 87
Inefficient resource allocation can result from many causes. 1) Government policies that supports low-productivi-ty businesses without providing long-term solutions can turn businesses into zombie firms, preventing resources from being relocated to more productive ones. Besides, regulations that obstruct innovation or development can also be the cause of resource misallocation 2) Underdeveloped financial sector will lead to suboptimal capital allocation in the forms of loan granting and collateral ownership. Finally, 4) insufficient competition means that firms do not have to adapt in order to survive. Hence, there is little resource relocation to boost competitiveness, leaving the overall allocation inefficient. Approaches for future labor productivity development Country-level1) Invest in infrastructures – EIC finds that Thailand should invest in infrastructures especially water utility and rail system. Moreover, Thailand should also invest and advance in ICT infrastructures since these infrastructures are critical for economic development going forward. 2) Improve the quality of education and eliminate the problem of skill mismatch in the labor market – Education system should be improved for practicality and be more demand-driven in order to solve skill mismatch problem. For example, education system should produce more of technicians rather than social scientists as the market is currently lacking technicians. 3) Foster appropriate level of competition – Competition will bring more efficient resource allocation and development of innovations. Therefore, the government should reduce monopolistic competition and support free and just competition in a gradual manner, allowing time for business owners to adjust. 4) Use short-term subsidies in combination with long-term solutions – short-term supportive pol-icies to low-productivity businesses, such as debt moratorium for farmers and soft loan for SMEs, can bring about more-than-necessary resource concentration in low-productivity businesses. Thus, measures for long-term development should be used together.
Firm-level1) Increase productive investment – In addition to investment in tangible assets, investment in ICT systems is also necessary, since it is an important ingredient for advancing firm productivity. Moreover, firms have to recognize the importance of R&Ds, which is the key to future business success. 2) Hold regular and effective staff trainings – In the era of fast technological changes, trainings of new technology and the implications on the jobs are another important factor that will support more efficient workforce, directly boosting labor productivity. 3) Gain productivity from data analytics – Data analytics not only bring higher business opportunity such as creating customized products for precise target group, but also lead to lower cost by utilizing AI such as using Chatbot to answer questions replacing human.
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
EIC Outlook Quarter 2/201988
Source: EIC analysis based on data from the NESDC.
Figure 45 : Thailand’s economic growth rate is in continued decline.Thailand’s Economic Growth during 1991-2018
Unit : %YOY
It is commonly known that the Thai economy is growing at a slower pace than before. Thailand’s economic growth averaged at 8.0% per year in the period before the economic crisis (1991-1996). After the crisis, economic growth recovered and averaged at 5.2% per year before the outbreak of the Global Financial Crisis (1999-2007). However, during 2011-2018, the growth rate fell to an average of only 3.3% per year. Such decline in the growth rate can be attributed to a number of factors, such as political uncertainties in the country, natural disaster, as well as global economic slowdown that resulted from sluggish recovery among Developed Markets (DM) economies which suffered severely from the 2008 Crisis. Although Emerging Markets (EM) economies were largely spared from the crisis, they also experienced a slowdown on the back of plunging exports, which were directly hit from the deceleration in DM. In addition, the declining workforce was another important structural factor that weighed on economic growth in Thailand.
As shown on Figure 46, Thailand’s workforce has been trending down since 2012, as some of the labor force reached retirement. This problem is characteristic to several countries with an aging population. Recently in 2018, the total workforce in Thailand stood at 38.4 million people, down from 39.4 million back in 2012. Since labor force is considered one of the key factors of production in the economy, a structural change in the labor force has a direct impact on the overall economic potential. Labor force data reveal that the share of elderly workers (those more than 50 years old) has increased in recent years, suggesting that Thailand’s workforce will decline further once workers in this age group reach retirement age. To ensure that Thailand’s economic growth contin-ues smoothly despite the falling workforce, one option is to import more migrant workers from abroad. However, this is merely a short-term fix, because there is a risk that these migrants will leave one day, and the economy will take a hit. For this reason, a measure that should be carried out concurrently is to increase per capita labor productivity of the Thai workers, in order to make up for the falling workforce.
8.0
5.2
3.3
-8
-6
-4
-2
0
2
4
6
8
10
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Economic Intelligence Center (EIC) 89
Source: EIC analysis based on data from NSO
Figure 46 : Thailand’s workforce has been in decline since 2012. Moreover, the share of elderly workers has been rising, suggesting further drop in the workforce going forward.Thai Labor Force during 2002 - 2018
With the motivations outlined above, this study seeks to understand the issues around Thailand’s labor produc-tivity during the past 15 years (since 2003). These include past developments, any sources of concerns, as well as policy recommendations that will help improving labor productivity going forward. The study includes 3 time periods, namely 1) prior to the Global Financial Crisis 2003-2007, 2) the Global Financial Crisis 2008-2010, and 3) the current period 2011-201816
16 However, due to data limitations, such as the lack of capital stock data beyond 2015 and National Income data beyond 2017, a number of analyses could not include all the years up to 2018.
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
EIC Outlook Quarter 2/201990
The Thai Labor Productivity in the past 15 yearsBefore we go into details about development in the Thai labor productivity, a common method used to calculate labor productivity should be explained. Labor productivity is the value added that labor can produce in an hour, which is equal to real GDP divided by total hours of work17 Furthermore, labor productivity can be decomposed into three components :18
• Labor Quality— the value of labor to total working hours. Put simply, quality of labor improves if the same units of labor yield the same quantity of output in less hours, holding constant units of capital and other factors of production.• Capital Deepening—the value of capital to total working hours. Labor that possesses higher valued capital would become more productive. For instance, a shift from paper and abacuses to computers allows an accountant to produce more output using the same work hours.• Total Factor Productivity (TFP)—referring to other factors causing higher labor productivity. A common explanation relates to technological advance. For example, employing higher quality machines that cost the same as the less quality ones would lead to an increase in labor productivity.
Source: EIC analysis based on data from NESDC and NSO
Figure 47: Comparing the periods between 2003-2007 and 2011-2015, total labor productivity grew at the same pace at around 4%. Looking at each subcomponent, the growth rate of TFP has slightly improved while the intensity of capital to working hours has edged downward.Compositions of Thailand Economic growth in 3 periods
Unit : %
17 In some cases where data on work hours is lacking, labor productivity is the value added each unit of labor produces, equaling value added divided by the number of labor. 18 Details can be found in the technical note
Note: The latest available capital stock data in 2015. Thus, the study cannot go beyond 2915.
1.7%
0.5%0.9%
0.1%
0.0%
0.6%
2.2%
0.7%
2.4%
1.6%
1.6%
-0.9%
5.6%
2.8% 3.0%
2003-2007 2008-2010 2011-2015Capital Deepening Labor Quality TFP Total Work Hours Real GDP (%)
4.0%
1.2%
3.9%
Labor Productivity(%) = Capital Deepening (%) +
Labor Quality (%) + TFP (%)Real GDP (%) = Labor Productivity (%) + Total Work Hours (%)
Economic Intelligence Center (EIC) 91
The decomposition of GDP growth based on the above method is shown in Figure 47. Total GDP growth of the Thai economy has trended downward from 5.6% to 3.0% recently. Looking at each component, the slowdown in GDP growth comparing the periods between 2003-2007 and 2008-2010 is due to a notable decrease in labor produc-tivity from 4.0% to 1.2% (the sum of capital deepening growth, labor quality growth and TFP growth). This is caused by the global financial crisis. Despite a decrease of economic demand, businesses hoarded labor because the cost from firing workers might be high when in economic recovery period such as cost from recruiting new workers and labor training cost. Labor hoarding amid slowdown in production thus led to a decrease in labor productivity during the crisis. Furthermore, a slowdown in total GDP growth can be explained by the global phenomenon of declining investment and TFP. Nevertheless, the impact from the global financial crisis is short lived. To make a more meaningful comparison, we should compare labor productivity during normal periods which cover 2003-2007 and 2011-2015.
Comparing the periods between 2003-2007 and 2011-2015, the Thai labor productivity remained constant at about 4.0% in contrast to the major deterioration during the global financial crisis. Therefore, it can be concluded that the current labor productivity compared with the past 15 years is “not in a bad state”. Looking at the subcomponents, labor quality growth increased somewhat from 0.1% to 0.6%, while capital deepening growth decreased from 1.7% to 0.9%. Lastly, TFP growth has trended slightly upward from 2.2% to 2.4%. In conclu-sion, although total labor productivity remained constant, a twofold decrease in the growth rate of capital deepening from 1.7% to 0.9% warrants concern. This situation can be explained from Figure 48, indicating that Thai investment growth is obviously decelerating (from 8.9% per year in 2002-2007 to only 3.1% per year in 2011-2018) especially private investment. Investment is a main supporting factor to future labor productivity. Accordingly, low investment would imply the meagre rate of future labor productivity.
Source: EIC analysis based on data from NESDC
Figure 48: Thai investment growth is obviously decelerating especially private investmentInvestment growth both private and public in 3 periods
Unit : %
10.1%
7.5%
19.9%
8.9%
11.2%
3.9%3.1% 3.0%
4.1%
0%
5%
10%
15%
20%
Total Private Public
avg. 1994-1996 avg. 2002-2007 avg. 2011-2018
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
EIC Outlook Quarter 2/201992
Another observation from Figure 47 is that total work hours contracted during 2011 to 2015. The contraction is led by shrinkage of the Thai labor force which has caused a slowdown in the Thai economic growth. In sum, the Thai labor productivity growth has remained unchanged, but the ongoing shrinkage of the Thai labor force has caused the economy to slow down. While decelerated investment would yield lower labor productivity growth going forward. The question pertinent to future Thai economic growth is whether we should see an acceleration in the increase of Thai labor productivity or we should be satisfied with the current trajectory. Based on EIC’s analysis19, the answer is no—the current growth rate of Thai labor productivity is not high enough considering the amount of time that it would take Thailand to the high-income country tier. As shown in Figure 49, in 2017, Thai GDP per capita stood at 6,600 USD, falling into the category of upper-middle income countries, while GDP per capita of high-income countries must be greater than 12,055 USD. If Thailand is to become an upper-income country within 10 years, the economy must grow at a high rate of 6.6%. Based on the current downward trend in the labor force participation, it would take about 30 years for Thailand to overcome the middle-income trap. Therefore, quality of Thai labor must be improved fast enough for the economy to march forward.
Source: EIC analysis based on data from NESDC, World bank and CEIC
Figure 49: Without growth in labor productivity, it would take 30 years for the Thai economy to overcome the middle-income trap.Thailand’s Economic Growth to achieve high income threshold
Unit: USD
19 The assumption is that high income threshold increases by 1.8% every year. This rate is the average growth rate of CAGR of high-income threshold during 2002-2017. For Thailand, inflation rate is assumed to be 2.2%, which is the average value of CAGR during 2002-2017 as well. Forecast on population growth is based on the forecast conducted by NESDC (2002-2030) and use the latest forecast trend to project further periods. For the Thai economic growth, the growth rates of capital and TFP are assumed to be constant while the size of labor force is expected to fall. In the first 10 years (2019-2029), the projected growth rate is 3% followed by 2% (2030-2039) and 1.5% (2040-2049).
The current concerns on the Thai labor productivity.Although the total labor productivity has remained unchanged at around 4.0%, a number of concerns arise and these could impede improvement in labor productivity going forward.
The first concern: the level of labor productivity commonly calculated might be over-estimated due to foreign labor being excluded from the calculation.
Source: EIC analysis based on data from Foreign Workers Administration Office.
Figure 50: The number of foreign workers in Thailand has steadily increased.Number of foreign workers in Thailand during 2007 - 2018
Note: Data on foreign labor before 2007 has problems of accuracy and completeness. EIC therefore decides to analyze the data after 2007 onwards.
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
EIC Outlook Quarter 2/201994
Source: EIC analysis based on data from Foreign Workers Administration Office.
Figure 51: Incorporating foreign workers into labor force, labor productivity fell in terms of levels and growth rates
Labor productivity level and growth, when including foreign workers
Unit: Baht/person/annual
Based on data from Foreign Workers Administration office, Ministry of Labor, the number of foreign workers in Thailand has steadily increased (Figure 50) from 5 hundred thousand in 2007 to about 2.2 million in 2018, reflect-ing the importance of foreign labor on the Thai economy. Nevertheless, most studies on Thai labor productivity do not incorporate foreign workers into analysis, leading to overestimation of the Thai labor productivity. Results from the EIC analysis which incorporates foreign workers into the Thai labor force is shown in Figure 51. The Thai labor productivity (baht/worker) decreased in both periods. Furthermore, the growth rate of the Thai labor productivity also fell.
Nevertheless, data credibility remains to be questioned20 The data from Foreign Workers Administration Office only counts registered foreign workers, while in reality the number of unregistered foreign workers is likely to be high. Adding unregistered foreign workers into the labor force would further dampen labor productivity. In addi-tion, it is possible that in the early phase of foreign worker registration, many foreign workers were not counted. Therefore, the growth rate of the number of foreign workers could be higher than it should be, implying that the true growth rate of labor productivity could be lower than the current estimate21
In sum, if foreign workers are incorporated into the analysis, the level of labor productivity could be lower than the current statistics. The impact on the growth rates of labor productivity, however, is ambiguous.
Note: The data prior to 2007 is released on fiscal-year basis. The analysis is based on calendar year, so the pre-2007 data is not covered.
213,045
250,064
207,438
240,253
1.2%
3.1%
0.7%
2.8%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
-
50,000
100,000
150,000
200,000
250,000
300,000
2008-2010 2011-2018only Thai Thai+Foriegn%yoy only Thai %yoy Thai+Foreign
20 Due to concerns over data credibility and short span of the available data, other studies in this report do not incorporate foreign workers into analysis. 21 Labor productivity = GDP/number of labor Growth rate of labor productivity GDP growth – growth rate of labor. Therefore the overestimation of labor force growth would lead to underestimation of the growth rate of labor productivity.
Economic Intelligence Center (EIC) 95
The second concern: Decrease of Within-sector productivity.
Sectoral analysis on labor productivity based on a method called GEAD22 is able to divide overall country’s labor productivity into two elements as follows.
• Within-sector productivity refers to the sum of labor productivity growth of each sector. • Labor Relocation refers to the sum of labor relocation from sectors with low productivity to sectors with relatively higher productivity, leading to improvement in overall labor productivity.
Figure 52 shows results of the sectoral analysis on labor productivity for each period which suggests that the main reason for a stable growth of overall labor productivity was due to the increase in labor relocation. Meanwhile, within-sector productivity was decreasing, falling from 3.0% to 2.6%.
Source: EIC analysis based on data from NESDC and NSO
Figure 52: Labor productivity growth was roughly stable. However, productivity growth resulted from labor relocation increased, while within-sector productivity decreased.
Compositions of Labor Productivity using GEAD method
Unit : %
22 Details can be found in the technical note 23 Analysis during 2008-2010 is left out as it is the period with an impact from global financial crisis, which is a temporary factor. This study aims to analyze the structure so it focuses on the period with least impact from temporary factors. Other topics of this study also leave out the analysis during 2008-2010.
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
EIC Outlook Quarter 2/201996
Detailed analysis on labor relocation (Figure 53) suggests that sectors with a decreased labor share are mostly sec-tors with low productivity such as agriculture, manufacturing, hotels and restaurants, and transportation and com-munication. Meanwhile, sectors with an increased labor share are often sectors with relatively higher productivity. Based on the calculation on data from 2011 – 2018, sectors with a decreased labor share have an average pro-ductivity of only 182,674.2 baht per person per year. Meanwhile, sectors with an increased labor share have an average productivity as high as 300,808.5 baht per person per year.24 Meanwhile, sectors with an increased labor share have an average productivity as high as 6,574 baht per person per year. Such figures reflect that labor re-location benefits an overall productivity as a decrease in labor in sectors with low productivity corresponds
According to the GEAD analysis (Figure 52), labor relocation in recent periods has been highly beneficial to the growth of labor productivity overall. Within-sector productivity, however, decreased, which is an important concern as there are still many limitations for labor relocation from sectors with low productivity to ones with higher productivity. That is, for labor relocation from one sector to another, this would require some time for labor to adjust and learn new skills. Thus, labor relocation cannot happen instantly. In addition, current problem is that skills of labor are not enough to relocate to higher productivity sector and there is also a skill mismatch problem, which is one of the reasons why labor relocation from low productivity sector to higher productivity one cannot occur easily in a short amount of time. Therefore, since growth of overall labor productivity cannot rely on labor relocation, within-sector productivity will become a key driver of overall labor productivity in the period ahead.
Source: EIC analysis based on data from NESDC and NSO
Note: An average labor productivity is an average level weighted by labor share of each sector.
Figure 53: In recent years, there has been labor relocation from sectors with lower productivity to sectors with higher productivity. Labor share and productivity level in each sector
Unit: %
24 Average labor productivity weighted by labor share of each sector
Unit: Baht/person/year
Economic Intelligence Center (EIC) 97
The Third concern: Thailand has a small share of high productivity labor to total workforce
Source: EIC analysis based on data from CEIC and International Labor Organization (ILO)
Figure 54: Thai labor is largely concentrated in low productivity level, while for developed countries, labor is more distributed according to labor productivity.Each country’s labor productivity distribution by sector
Unit: %
Indonesia
Malaysia
Thailand
South Korea
Singapore
US
6,179
20,597
9,759
44,925
92,931
108,849
Labo
r Sh
are
Labor Productivity (USD/Person)
Dash lines represent average labor productivity weighted by labor share of each country
Figures in parenthesis means the share of labor that lies lower than average productivity (dash line)
(68.0%)
(68.0%)
(69.2%)
(64.4%)
(48.9%)
(59.8%)
Note: Calculation of an average real GDP (2010 price) during 2011 – 2017.
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
EIC Outlook Quarter 2/201998
Figure 54 shows distribution of labor in each country according to their productivity levels based on sectoral analysis. The dotted line represents the average labor productivity of the country.25 For all countries included in the analysis, Thailand is ranked the second lowest, having an average labor productivity of 9,759 US dollar per person per year which is only higher than Indonesia. Whereas, the US has the highest productivity at 108,849 US dollar per person per year.
Another interesting issue to note is that the labor productivity level of Thai is clearly lower than that of developed countries’ level (productivity level of Thai labor with high-productivity is only equal or even lower than productivity level of developed countries’ labor with low-productivity). Moreover, the patterns of labor distribution are also worth to be noted. Three developed countries including South Korea, Singapore, and the US have similar labor share for each level of productivity. Meanwhile, developing countries including Indonesia, Thailand, and Malaysia have right-skewed distribution of labor, meaning that labor in these countries mostly has low productivity where only a handful of labor has high productivity. By using a criterion of weighted average plus a standard deviation (weighted average + 1 S.D.) to indicate whether labor is high-productivity, it can be concluded that only 7.7% of Thai labor has high productivity, relatively low level corresponding to that of Malaysia and Indonesia at 4.2% and 4.4%, respectively. Whereas, for developed countries like South Korea, Singapore and the US, shares of labor with high productivity are as high as 24.7%, 20.3% and 17.7% respectively. Given such backdrop, it will be an obstacle for economic development in period ahead as economic system with large share of low produc-tivity labor significantly reflects low levels of skills or education of most labor in that country. Looking ahead, if there is a rapid change in technology, this labor may not be able to adjust due to lack of skills to learn, which will eventually have an impact on economic development overall. Besides, the pattern that most workers are low productivity might also reflect income inequality problem. There is a study26 concluding that income inequality would hinder economic growth through reducing low-income people’s incentive for acquiring further education as higher education would still yield relatively low wage. Also, tensions between social classes from income inequality might outbreak a political crisis.
The Fourth concern: Based on sectoral analysis, a large amount of labor and capital resources is allocated inefficiently
Apart from concerns over Thailand’s labor productivity as outlined above, another key concern is on resource allocation. An approach on how to conduct this study is the sectoral analysis on labor and capital allocation. For example, for all existing labor in Thailand, the study responds to whether there should be an allocation of labor into or out of agricultural sector, and/or whether there should be additional or reduced capital allocation to any sector.
25 An average labor productivity of the country weighted by shares of labor26 The impact of income inequality on economic growth (2015) by Petersen and Schoof
Economic Intelligence Center (EIC) 99
The study method27 can be easily explained where the country is assumed to be a one big company and a policymaker is a company owner who is responsible for labor and capital resources allocation. This company produces one type of product (comparable to country’s GDP) which requires the use of intermediate goods from small companies in various sectors (comparable to GDP by sector). For intermediate goods production, each sector has to employ labor and capital resources in order to produce goods. Thus, in perspectives of company owner, if any sector has relatively higher productivity in using resources such that it can produce more given equal amount of labor and capital. Owner should thus allocate resources from a less productive sector to a more productive one in order to save cost and increase output simultaneously. Such allocation will be based on profit maximization calculation.
Nevertheless, comparing the above analysis with an actual data on the use of resources in each sector reveals that the actual use of resources is often not equal to the level of resources appropriate for each sector. In this situation, the difference between actual and appropriate levels is called a wedge or friction which represents an obstacle in resources allocation that distorts level of resources away from an appropriate level. For example, if the data suggests there should be an increase in resources in one sector, such wedge may reflect a barrier to entry such as the concession system or high costs of entering businesses that prevents resources allocation to start a business in that sector. Causes of wedge will be discussed in further details in the next section. Figure 55 shows results of the analysis on labor and capital resources, where the height of the bar chart shows the wedge value of each sector. The negative wedge value suggests too many resources for particular type of resources. On the contrary, the positive wedge value reflects a too few resources. Meanwhile, the percentage of total stock shows the proportion that should be reallocated relative to the total amount of capital and labor in the economy. Since this is the reallocation of resources, the total amount of labor and capital before and after the allocation will remain the same. In other words, the sum of wedge values for both labor and capital will equal to 0.
Considering the nature of wedge values in both periods, clear sign of change in patterns has yet to be observed. This reflects that there has not been any remarkable change in the resources allocation for the Thai economy in the past 15 years. Sectoral analysis on labor resources allocation suggests that during 2011-2015, agriculture sector had too much labor (14.6% decrease required). Therefore, agriculture must be developed to improve its productivity, leading to lower number of workers required. And labor who exit from agriculture should go into more productive sectors such as industrial sector (4.2% increase required), wholesale and retail sector (4.4% increase required), and transportation and telecommunication sector (4.0% increase required). In addition, considering the periods during 2002-2007 and 2011-2015 reveals that wedge for agricultural labor decreased (less negative), while those of industrial and services sectors also declined (less positive). This reflects that some agricultural labor have moved to work in industrial and services sectors, resulting in an improvement in overall productivity. This is in line with the preliminary GEAD analysis which indicates that, during 2011-2015, overall labor productivity grew mainly due to labor relocation.
However, in periods ahead, moving labor out of agriculture is highly challenging because most of agriculture work-ers have low skills that could obstruct labor moving to high productivity sectors. Furthermore, high share of aging labor in agriculture would also problematic as elderly people tend to improve skills slower. Government should therefore implement appropriate training measures for increasing agriculture workers’ skills, so that they can move to more productive sectors. To achieve this, the training should incorporate firms’ coordination to acknowledge the accurate and practical skills needed, which is beneficial for constructing an applicable training course.
Moreover, the wedge analysis on capital resources suggests that utilities sector (production of electricity, water, and gas) and transportation and telecommunication sector have too high capital (an excess of 7% and 16% of total capital stock, respectively). This reflects that the use of capital for value creation in these two sectors is
27 Details can be found in the technical note which is only published on www.scbeic.com (Readers can scan QR code at the end of this report)
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EIC Outlook Quarter 2/2019100
Source: EIC analysis based on data from NESDC and NSO
Figure 55: Considering the effectiveness of the use of resources reveals that there is too much labor in agricultural sector, while there is too much capital in transportation and telecommunication sector.Wedge by sector
28 Data during 2011-2015 from Thailand’s Capital Stock, NESDC 29 Details can be found in the technical note which is only published on www.scbeic.com (Readers can scan QR code at the end of this report)
Note: • The analysis does not include labor and capital resources of public administration, education, and healthcare and social services sectors as these sectors are perceived to provide public benefits. Thus, comparing added values from these sectors to other sectors would be inappropriate. • Capital resources which is housing in the real estate sector are left out, while imputed rent is also left out in the value creation part.29 This is because for the reallocation of resources, people houses cannot converted into other capital resources.
not sufficiently efficient relative to other sectors. With further study28, EIC finds that the ratio of capital owned by government of these two sectors were higher than others relatively (government owned 84.7% and 46.6% of total capital stock in utilities and transportation&communication sectors, respectively). This might imply the fact that these two sectors have lower productivity in using capital because government or state enterprises do not have a goal to maximize profit. However, to some extent, it still infers that public institutions have lower productivity in doing business compared to private. For example, in transportation sector, state enterprises such as state railway of Thailand and Bangkok Mass Transit Authority (BMTA) have been suffered in a continued loss from too low ser-vice prices in order to serve people as a basic need, as well as low quality in business management. As a result, companies or state enterprises in those two sectors should increase their productivity in using capital, contrast to manufacturing, wholesale and retail, and financial sectors that should be attained more capital since they are so efficient in using capital.
Economic Intelligence Center (EIC) 101
The causes of the wedge may come from various factors. A survey of various studies on resource misallocation, the causes of the wedge, and market distortions that cause resource misallocations30 reveals the following findings.
1) Government policies - Most government policies that cause distortion of resource allocation are subsidizing policies, such as agricultural support policies with no promoting the increase in long-term productivity in tandem. This does not incentivize the agricultural sector to adapt themselves to survive, leading to no labor movement out to other sectors. Another example is size-dependent policy, which may result in labor or capital being concentrated in small companies that often have low productivity. In the context of Thailand, these policies can often be observed, such as soft loan to SMEs. Additionally, regulations that obstruct innovation or development may hinder businesses to thrive with higher productivity. This might cause productive resource allocation less than it should be.
2) Financial sector development – According to the study,31 the financial sector is an important economic sector in allocating capital resources through raising deposits, extending loans and holding of collaterals. When the financial sector has not yet developed, it is highly likely that entrepreneurs who receive credit from financial institutions will not be the best entrepreneur (highest value creation per unit of capital). This is because the market still has a lot of frictions, such as imperfect information which makes financial institutions unaware of how good the entrepreneur is. Thus, extension of loans is tended to focus mainly on businesses that can offer collaterals, which may not be the most effective businesses in the market. In addition, loan extension supported by political connections causes capital resources to fall into the hands of some group of entrepreneurs. The study suggests a positive relationship between level of financial sector development of the country and the effective allocation of capital resources. In other words, if country’s financial sector is increasingly developed, businesses that receive loans will tend to make the most efficient use of capital resources. This results in a more effective allocation of resources for the economy.
In the context of Thailand, Thai financial sector has developed to a large extent, thus there may not be much of a problem in resource allocation. However, there is room for financial sector development that will help make resource allocation more efficient. For instance, the use of big data to analyze loan extension in order to find the most effective borrower without having to rely much on collaterals like what has traditionally been.
3) Competition – low level of competition which may be caused by industrial protection policy of the government or concession businesses often makes it unnecessary for businesses to adjust. This is because they can continue to make profits as competition is not intensified. On the contrary, another study32 found that if competition level increases, businesses with low productivity and unable to adjust fast enough will have to shut down their operations. Meanwhile, other businesses that survive have to invest more or hire efficient labor in order to enhance competitiveness of their businesses. Such events lead to resources reallocation from inefficient to a more efficient businesses, which is good for resources allocation of the country. In the case of Thailand, there are still some problems in this area, such as the concession system or the market that still has only a few competitors. This may distort the overall resource holdings.If Thailand can manage capital and labor more efficiently towards the Pareto efficient allocation, TFP can increase by as much as 20% from the previous level (Figure 56). Most of the improved TFP will emerge from capital relocation. Higher TFP translates to a higher GDP level that can liberate Thailand from the middle-income trap faster.
30 A summary from “The Causes and Cost of Misallocation” written by Restuccia and Rogerson, published in the Journal of Economic Perspectives - Volume 31, 2007 31 “Capital Misallocation and Financial Development: A sector-level analysis”, BIS Working Paper No 671, 2017 written by Marconi and Upper32 “Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants”, NBER Working Paper, 2000 written by Pavcnik
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Guidelines for enhancing Thailand’s future labor productivity Cooperation of both the public and private sectors are needed to improve labor productivity. The public sector can help boost labor productivity directly via national-level policy, and indirectly via establishing a good environment for increasing labor productivity such as eliminating regulations distorting resource allocation and giving subsidies to promising projects by the private sector. Meanwhile, the private sector can enhance labor productivity via firm-level policy that will improve labor efficiency. Guidelines to enhance labor productivity in summary are below.
Country-level measures 1. Invest in infrastructureInvesting in infrastructure will increase labor productivity directly through good quality infrastructure usage. From WEF Global Competitiveness 2018 report, overall score of Thai infrastructures is above the world average slightly (Figure 57). On the one hand, Thai electricity utility and air transport infrastructures scores are much higher the global aver-age. On the other hand, water utility and transport by railroads scores are below the global average. In case of water utility, 30% of total population in Thailand still consumes unsafe water. While the case of rail, the effectiveness of train system is very low. Consequently, government should primarily invest in water utility and rail transport infrastructures.
Source: EIC analysis based on data from NESDC and NSO
Figure 56: TFP will increase by 20% if resources were relocated according to production efficiency of each sector.TFP gain from Pareto Efficient Allocation
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
Aside from investment in basic infrastructure (roads, rails, piers, etc.) the public sector should also pay attention to the ICT infrastructure. For instance, improving internet accessibility and internet broadband speed given that ICT is an important factor for business operation in the private sector.
2. Improve the quality of education and reducing skill mismatch problemOne of the key takeaways from studies on capital and labor allocation is that labor has not been appropriately al-located. Most of the studies suggest that labor must be able to move freely (a flexible labor market) so that it can be allocated in an efficient manner to sectors with higher productivity. In the context of Thailand, the labor market is quite flexible in legal aspect. However, a major obstacle for labor mobility is a low labor skill. For instance, labor from the agricultural sector is unable to move into a sector with higher productivity due to a lack of skill. Hence, aside from the resource allocation issue, improving labor skill can also directly enhance production efficiency in each sector.
For the solutions, education system must be improved to be more practical. Education plan should rely more on labor market demand (demand-driven), leading to producing more workers that are truly needed. This can mitigate skill mismatch problem that persists in Thai labor market for a long time. To clarify, in past years, there have been too much social graduates, while technicians and scientists have been too low, causing imbalance in labor market. Besides, lifelong learning should be promoted as technology nowadays changes so fast, workers therefore should be trained regularly for enhancing their skills. Take an example from Singapore, government provides a support to lifelong learning courses via giving a subsidy to firms that arrange the course or giving a subsidy to Singaporeans directly for entering such courses.
Source: EIC analysis based on data from WEF Global Competitiveness 2018
Figure 57: Thai water utility and transport by railroads scores are lower than world averageInfrastructure score by The World Economic Forum 2018
Unit: score 0-100, 100 is the best
0
20
40
60
80
100Total
Transport by roads
Transport by railroads
Air TransportWater Transport
Utilities: Electricity
Utilities: Water
World Average Thai Thai score less than world average
EIC Outlook Quarter 2/2019104
3. Foster appropriate level of competitionAccording to various studies on labor productivity,33 competition is found to be the heart and soul of business adap-tion and innovation. When there is no competition, firms have no need to adapt. They merely need to maintain the status quo yet able to continue to reap profits. However, amidst competition firms are needed to always improve for survival. This event will improve overall labor productivity thru 1) resource relocation since the best firm can afford to hire the cream labor by attracting them with higher pays. Labor consequently mobilizes to sectors with the highest productivity. And 2) providing firms innovation incentives that will also lead to more innovation in the country.
In fostering appropriate level of competition, government should decrease monopolistic competition and might con-sider open the market to foreign competition, which should be implemented gradually for allowing time for business owners to adjust. However, according to a study by HBR34 that examines businesses in the US, the intense competition together with modern technology can bring about the “winners take all” phenomenon. That is when the most efficient firm ends up controlling all the best capital and labor resources to the point that they have the most comparative advantage in terms of cost and efficiency at the level that makes it impossible for other firms to compete against. Even-tually, other firms will die out. Only the largest firms remain and become oligopoly market. An EIC study on business environment in Thailand in the past decade reveals that this phenomenon is present in many of Thailand’s business sectors. (Read more at Data Analytics: Fiercer Competition, Major Challenge for Thai Businesses). If the winners-take-all phenomenon becomes more pervasive, the economy will return to the stage of non-competition. Therefore, the government needs to step in by enforcing competition law 2017 to enhance just, healthy and constructive competition.
4. Use subsidies hand-in-hand with long-term solutions. Implementation of supportive policy to help business sectors with low productivity can lead to inefficient allocation of resources. Therefore, implementation of such subsidies should be done with caution. There needs to be a policy to help increase and develop their competitiveness and capabilities of those subsidized at the same time. Otherwise, firms will not adapt and improve. They end up waiting for help all the time with no improvement on labor produc-tivity. The example of long-term policy can be drawn from Singapore. “SMEs Go Digital Programme” is the project of Singapore government that helps giving advice to SMEs in every stage to let SMEs able to exploit technology in their businesses. Moreover, they might also provide a subsidy to SMEs in transition period changing from traditional to new technological method.
Firm-level measures1. Increase productive investment It is undeniable that labor and capital are used concurrently. If capital is modern and efficient, labor efficiency will also enhanced. Therefore, firm investment is a key driver that will boost labor efficiency. However, from the analysis “Thailand’s labor productivity in the past 15 years” in the beginning, we found that lately capital deepening growth decreased. Furthermore, in comparison to countries with similar economic development such as Indonesia and Malaysia, and developed economies such as South Korea, Singapore, and the US, we found that Thailand’s capital investment has slowed down the most (Figure 58). This shows a worrying trend of Thailand’s capital investment. Accordingly, entrepreneurs should invest more, but it is not necessary that the value of investment must be higher than the previous periods because nowadays technology has changed drastically. Productive investment is not required to high value investment any more. For instance, if firms need to increase their digital capacity to collect data, they will not have to construct buildings or purchasing harddisks, which have a high cost of building and maintenance, they just rent a cloud system from expertise companies.
33 “Unleashing Prosperity” by World bank “The Causes and Costs of Misallocation” by Journal of Economic Perspectives—Volume 31 – 2017 “The ONS Productivity Handbook” by Office for National Statistics, UK, 2007 “Outperformers : High-Growth Emerging Economies and the companies that propel them” by McKinsey, 201834 “The High Price of Efficiency”, Harvard Business Review, Jan-Feb 2019
Economic Intelligence Center (EIC) 105
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
Source: EIC analysis based on data from CEIC
Note: Data from some countries are only available until 2017. Only data up to only 2017 is used for consistent analysis.
Figure 58: Growth rate of Thailand’s investment between 2002-2007 and 2011-2017 letup the most, while growth rates in other countries increased or only slightly decreased.Investment growth of some countries in 2002-2007 and 2011-2017
Unit: %yoy from USD term
Besides investment of physical or tangible assets, the private sector should direct their investment to ICT. Ac-cording World Bank’s study,35 ICT investment in the US and Europe led to considerable improvement in labor productivity. This is because digital or ICT technology is a key driver for firm growth nowadays such as the use of automation, data analytics, and artificial intelligence.
About Thailand’s ICT adoption, from WEF Global Competitiveness 2018 report, Thailand’s overall score of ICT adoption is slightly above the world average. Mobile usage both phone and broadband are the strong points of Thai ICT adoption, scoring higher than global average. Still, other points are scoring lower the global average. This indicates that there is still a room for ICT development in Thailand for raising firms’ competitiveness in the future.
35 “Unleashing Prosperity”. Productivity Growth in Eastern Europe and the Former Soviet Union. Asad Alam. Paloma Anós Casero. Faruk Khan. Charles Udomsaph
8.9%
7.1%
4.8%
4.2% 4.0%
2.4%2.9%
6.2%
7.2%
3.8% 3.7% 3.7%
0%
2%
4%
6%
8%
10%
ไทย อินโดนิเซีย มาเลเซีย เกาหลีใต สิงคโปร สหรัฐฯ
เฉลี่ยป 2002-2007 เฉลี่ยป 2011-2017
์
8.9%
7.1%
4.8%4.2% 4.0%
2.4%2.9%
6.2%
7.2%
3.8% 3.7% 3.7%
0%
2%
4%
6%
8%
10%
Thailand Indonesia Malaysia Korea Singapore US
avg. 2002-2007 avg. 2011-2017
EIC Outlook Quarter 2/2019106
Source: EIC analysis based on data from WEF Global Competitiveness 2018
Note: ICT adoption is calculated from (1) Mobile-cellular telephone subscriptions per 100 persons (2) Mobile-broadband subscriptions per 100 persons (3) Fixed-broadband Internet subscriptions per 100 persons (4) Fibre Internet subscriptions per 100 persons and (5) Internet users
Figure 59: Thai ICT adoption is slightly above the world average. Mobile phone subscription and Mobile-broadband subscription are far higher than global average. While others have lower score than the world average.ICT Adoption score by The World Economic Forum 2018
Unit: World average = 1
ICT adoption
Mobile-cellular telephone subscriptions
Mobile-broadband subscriptions
Fixed-broadband Internet subscriptions
Fibre Internet subscriptions
Internet users
World Average Thai Thai score less than world average
Economic Intelligence Center (EIC) 107
In Focus - Assessing Thailand’s labor productivity: “Manageable, yet inadequate and concerning.”
Aside from ICT investment that can enhance work efficiency, another factor that will boost goods and service production with innovation is research and development (R&D) investment. In this regard, Thailand still has much to improve. According to Figure 60, Thailand’s R&D to GDP ratio in 2011 to 2015 averaged only 0.5% per an-num. The average trend (the dotted line) shows that a country with high R&D investment also has high income per capita. The exceptions of countries with lower R&D investment but high income per capita are the countries with crude oil. Hence, R&D is a key factor that we should pay attention to. Not only should we increase the R&D investment but also focus on more practical implementation of innovation.
Source: EIC analysis based on data from the World Bank.
Figure 60: Countries with high income per capital also have high R&D investment Share of R&D to GDP and GDP per capita in 2011-2015
2. Hold effective staff trainings on a regular basisIn a world of rapidly changing technology, workers are having ever more difficulty adapting whilst working fulltime. Companies should therefore organize regular training opportunities for their staff to enhance their productivity. The scope of training should be relevant and practical, whilst the government can support these training via subsidies or setting up of centralized learning centers. These courses, however, should be closely assessed to ensure their effectiveness.
3. Enhance work efficiency via data analyticsApplying data analytics can augment business opportunities, for example, advertisement businesses are able to present different versions to several customer targets. Besides, data analytics can also reduce cost, for instance, using artificial intelligence as a Chatbot to answer frequently asked questions can reduce the cost of employing workers to do this job. Moreover, firms can reallocate workers to other higher productive jobs. Data therefore is so valuable in the present if it was analyzed and implemented effectively.
Unit: % and USD
� �
ChinaThailand
�IsraelSouth Korea
Saudi ArabiaHong Kong
UAE Norway
KuwaitSingapore
Luxembourg
Macao Qatar
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
GDP
per
cap
ita
%R&D to GDP
Source: EIC analysis
Figure 61: Summary of approaches to enhance labor productivity in Thailand
• Invest in infrastructure
• Improve education quality
• Promote proper level of competition
• Investment - Physical invest - ICT invest - R&D
• Employee Training
• Data analytics for creating opportunities and reducing costs
• Subsidize Training cost
• Improve digital adoption of SMEs
Abbreviations of Sectors
Country-Level Company-Level
Abbreviations Full titles in English Agri Agriculture and Fisheries Mining Mining and Quarrying Manuf Manufacturing Utilities Electricity, gas and water supply Construct Construction Trade Wholesale and retail trade Hotel&Res Hotel and restaurant Trans&Comm Transport, storage and communications Other Other sectors including Public administration, Education, Health, Social
activities and Private households
Economic Intelligence Center (EIC) 109
Key
indica
tors
2018
Un
it Ac
tual
EIC fo
reca
st Co
nsen
sus (
Mar
19)
Shar
e (%
) 20
16
2017
20
18
H1/1
9 H2
/19
2019
20
19
Real
GDP
grow
th
% YO
Y 3.
4%
4.0%
4.
1%
3.4%
3.
9%
3.6%
3.
6%
Dema
nd-si
de
Priva
te co
nsum
ption
51
% %
YOY
2.9%
3.0%
4.6%
4.0%
3.0%
3.5%
3.9%
Publi
c co
nsum
ption
15
% %
YOY
2.2%
0.1%
1.8%
2.2%
3.4%
2.8%
Total
Inve
stmen
t 24
% %
YOY
2.9%
1.8%
3.8%
4.1%
4.9%
4.5%
4.0%
Priva
te inv
estm
ent
18%
% YO
Y 0.6
% 2.9
% 3.9
% 5.1
% 2.6
% 3.8
%
Publi
c inv
estm
ent
6%
% YO
Y 9.5
% -1
.2%
3.3%
1.6%
12.1%
6.4
%
Exter
nal s
ector
Expo
rt of
Goo
ds (U
SD)
%
YOY
0.1%
9.8%
7.2%
0.4%
5.0%
2.7%
4.6%
Impo
rt of
Goo
ds (U
SD)
%
YOY
-5.1%
13
.2%
14.3%
-0
.2%
6.3%
3.2%
6.6%
Curre
nt ac
coun
t
USD
bn
48.2
50
.2
35.2
21
.6
13.2
34
.8
33.2
Curre
nt ac
coun
t/G
DP
%
of G
DP
11.7%
11
.0%
6.9%
8.2%
4.7%
6.4%
Key
rates
Head
line
inflat
ion
%
YOY
0.2%
0.7%
1.1%
0.8%
0.9%
0.9%
1.0%
Core
inflat
ion
%
YOY
0.7%
0.6%
0.7%
0.7%
0.8%
0.8%
Po
licy
rate
(RP-1
D) (e
nd
perio
d)
%
p.a.
1.50%
1.5
0%
1.75%
1.7
5%
1.75%
1.7
5%
THB/
USD
(end
perio
d)
TH
B/US
D 35
.3
33.9
32
.3
31.5-
32
31-3
2 31
-32
Oil
price
, Bren
t (av
erage
)
USD/
barre
l 45
55
72
66
67
66
Sour
ce: E
IC fo
reca
st b
ased
on
data
from
Blo
ombe
rg, B
OT,
CEI
C, IM
F, M
OC,
MO
F, N
ESDB
, OAE
, OIE
, TAT
. Con
sens
us fo
reca
st fr
om A
PCF
Cons
ensu
s Eco
nom
ics
Surv
ey a
s of D
ecem
ber 2
018
Sum
mary
of E
IC fo
reca
sts
Q
2/20
19
Sour
ce: E
IC for
ecas
t ba
sed
on d
ata
from
Blo
ombe
rg, B
OT,
CEI
C, I
MF,
MOC, M
OF,
NES
DC, O
AE, O
IE, T
AT. C
onse
nsus
for
ecas
t fro
m A
PCF
Con
sens
us E
cono
mics
Surv
ey a
s of
Apr
il 20
19
ContributorsYunyong Thaicharoen is a First Executive Vice President of the Economic Intelligence Centre (EIC), a strategic unit of Siam Commercial Bank Public Company Limited (SCB). Prior to joining SCB, Yunyong was a Director at the Monetary Policy Department, Monetary Policy Group, Bank of Thailand which oversees overall monetary policy analyses and recommendations on interest rate, exchange rate, and capital flow policies. He also held the position of Director of the Capital Market Research Institute at the Stock Exchange of Thailand.
Yunyong is an expert on macroeconomics, monetary policy, and capital market. He frequently gives lectures to public seminars, as well as to organisations both domestically and abroad. Yunyong is also a special instructor at various academic institutions.
Yunyong holds a doctorate in economics, specialising in monetary policy and international economics, and a bachelor’s degree in economics from Massachusetts Institute of Technology (MIT) under a scholarship from the Bank of Thailand.
YUNYONG THAICHAROEN , PH.D.
Chief Economist and First Executive Vice President Economic Intelligence Center
Krasae has experience in the area of macroeconomic analysis and forecast. He specializes in using quantitative models as a tool. He formerly worked as a researcher in the macroeconomic program at the Thailand Development Research Institute (TDRI). After that, he worked for the Fiscal Policy Office (FPO) as an economist. At the FPO, he was responsible for producing quarterly macroeconomic forecasts as well as public policy analyses.
Krasae received his Bachelor’s degree in Economics with a Quantitative Economics major from Chulalongkorn University. He was awarded a Royal Thai Government scholarship to pursue a Master of Science in Economics degree from University of Warwick, UK. He also received certificates for various training courses from the International Monetary Fund (IMF).
KRASAE RANGSIPOLSENIOR ECONOMIST
PANUNDORN ARUNEENIRAMARNSENIOR ECONOMIST
Panundorn has experiences in monitoring, analyzing and forecasting Thai economy. His expertise is to use econometric and economic model as a tool to evaluate economic events. Prior to joining SCB, he was an economist at Fiscal Policy Office, Ministry of Finance. His main responsibilities were policy impact assessment and macroeconomic forecasting.
Panundorn received his Bachelor’s degree in Economics (First Class honors with Gold Medal), majoring in quantitative economics from Chulalongkorn University. Afterwards, he was awarded from Royal Thai Government scholarship to achieve a Master of Philosophy in Economics degree from University of Cambridge, UK. Moreover, he also attained several training course certificates from International Monetary Fund (IMF) and Asian Development Bank (ADB).
Thanapol has experience in conducting research in the field of international economics and has worked on several empirical studies concerning the Thai economy, especially concerning micro-level analysis. His firm-level studies are related to international trade, foreign direct investment, and firm performance by utilizing applications from microeconometrics and business economics. Apart from academics, he had an internship experience at Siam Commercial Bank Asset Management (SCBAM) and the Bank of Thailand in the Monetary Policy Group during his undergraduate studies. He also worked as an information officer for the Tourism Authority of Thailand (Tokyo Office) during his studies in Japan.
Thanapol received a Bachelor of Arts (First Class Honors with Gold Medal Award) in Economics from Chulalongkorn University. He was awarded a Japanese Government Scholarship to pursue his graduate studies and received his Master of Arts and Ph.D. in Business and Commerce from Keio University, Japan.
fiTHANAPOL SRITHANPONG, PH.D.SENIOR ECONOMIST
WACHIRAWAT BANCHUENSENIOR ECONOMIST
Wachirawat served as a senior economist at the Bank of Thailand. He was responsible for conducting research/analysis for the Monetary Policy Group. His main contribution was in the exchange rate policy strategy. Prior to that he served as a senior strategist at the Reserves Management department. His main responsibilities were formulating investment strategies and forecasting financial assets returns, e.g. EM exchange rates and bond yields. His expertise is in econometrics, forecasting, and optimization models. He also has research publication regarding term structures on PIER website.
Wachirawat received his Bachelor of Economics, International program (First class honor), from Thammasat University. He received Master of Science in Economics degree from University of Warwick, UK. He also received certificates for various training courses from the International Monetary Fund (IMF).
Sivalai has prior work experience in conducting research and analysis in economic, monetary, and fiscal policies as well as transport infrastructure at the Ministry of Finance, NESDC and Department of Highways. She was also an advisory staff member for the Minister of Transport. Her research interests include entrepreneurship and financial market risks.
Sivalai received her Bachelor of Economics (First Class Honors) from Chulalongkorn University. She was awarded the Royal Thai Government Scholarship to pursue MSc program in Policy Economics at the University of Illinois at Urbana-Champaign, and the World Bank Graduate Scholarship to pursue MSc program in Economics at the London School of Economics. She completed her doctorate degree in Applied Economics and Management at Cornell University.
SIVALAI KHANTACHAVANA, Ph.D.SENIOR ANALYSTAreas in charge: Petroleum and Energy
KRANIT UMSAKUL ANALYST
Kanit has prior work experience as a Marketing & Sale officer at leading Japanese steel manufacturer.
Kanit received his Bachelor of Economics (Frist Class Honors), major in International Economics, with Bhummiphol Scholarship from Kasetsart University and Master of Business Administration with Academic Excellence Award from Chulalongkorn University.
SUPREE SRISAMRAN, PH.D.SENIOR ANALYSTArea in Charge: Transportation and Logistics, Construction and Infrastructure
Dr. Supree has consulting experience for domestic and international organizations such as State Enterprise Policy Office (SEPO) in the promotion of Private Sector in Public Private Partnership (PPP) research, National Innovation Agency (NIA) in East-West innovation corridor project and the policy framework of the innovation district project, Asian Development Bank (ADB) in the Land Value Capture (LVC) as the impact of transportation infrastructure investment research. He was invited as a guest speaker for governmental and educational agencies ex. Public Debt Management Office (PDMO), Chulalongkorn University, Thammasat University. He also selected a working committee for the offset system in public sector procurement policy under Ministry of Science and Technology.
Dr. Supree obtain his Bachelor degree in Mechanical Engineering from Thammasat University then he pursued a Master degree in Engineering Management at Tufts University. Subsequently he interned as a business analyst at Blackmore Partners Inc. before continued his Doctoral education in Regional Science and Urban Economic at Cornell University. Additionally, Dr. Supree also passed intensive human development course in railway engineering from National Science and Technology Development Agency (NSTDA).
CHINNACHODTHAERAPANYAPORNANALYST
Chinnachod formerly worked as a research assistant for Human Resources Institute, Thammasat University with specialization on bureaucracy reform. During his academic year, he had an internship with Mizuho Bank (Bangkok Branch) in Treasury Operation Division, where he has experienced in foreign currency transactions.
Chinnachod graduated with Bachelor of Economics (First-class honor) in Monetary and Financial Economics from Thammasat University and he also received Certified Investment and Securities Analyst (CISA) level 1.
JIRAMON SUTHEERACHARTANALYST์
Jiramon previously worked as an economic consultant at The World Bank in Macroeconomics & Fiscal Management before moving to Finance & Market department. She has experience in working on Thailand’s Economic Monitor and initiating development projects for CLMV countries. During her academic year, she had an internship with Office of the Auditor General of Thailand in Performance Audit Office.
Jiramon graduated from Thammasat University with Bachelor of Economics in International Economics Major.
JIRAYU PHOTIRATANALYST
Jirayu previously worked as a research assistant for Environment Economic Research and teacher assistant for financial econometrics while studying. He also received award for his article from TDRI’s article competition Redesign Thailand. He was trained from Research Training Program from (RTP) faculty of economics, Thammasat University. In addition, He had an internship experience at Bank of Ayudhya.
Jirayu received his Bachelor’s degree Economics (Second-Class Honors) in Economics with a Monetary economics major from Thammasat University.
KUNYARUK NAIYARAKSAREEANALYST
Kunyaruk formerly worked as a research assistant for Economic Research and Training Center (ERTC), Thammasat University, with specialization on Foreign Direct Investment in Lao PDR. Prior to that, Kunyaruk worked with managerial accounting team at Mitsubishi Motors Thailand, where she was responsible for factory investment budget allocation and analysis.
Kunyaruk received her Bachelor of Economics, International program (Second class honors) from Thammasat University, and spent a year as an exchange student at Linnaeus University, Sweden.
PANG-UBON AMNUEYSIT ANALYST
Pang-ubon previously worked for the Revenue Department of Thailand as Tax Economist, her responsibilities were forecasting monitoring and analyzing tax revenue collection, setting up and monitoring tax revenue collection target, analyzing economics and business performance for tax revenue collection purpose and managing data for tax policy’s cost-benefit analysis. She also has experience in working on macroeconomics analysis and revenue forecasting using quantitative model and data analytics tools.
Pang-ubon graduated from Chulalongkorn University with Bachelor’s degree in Economics (Second-Class Honors) in Quantitative Economics. She was awarded a Royal Thai Government Scholarship to pursue a MSc. in Economics at University of Warwick, UK. In addition, she received certificates in ‘Effective and Efficient Use of Tax Incentives’ from Organization for Economic Co-operation and Development (OECD)
PULLAWAT PITIGRAISORNANALYST
Pullawat has prior working experience at Global Strategic Advisory Department of Mizuho Corporate Bank (Bangkok Branch) and internship experience as a Tax Trainee with PriceWaterhouseCoopers Thailand (Pwc Thailand). Pullawat also received the winner prize (Golden Medal) of the Jewel Crown Economic Challenge for University Student in 2014.
Pullawat received his Bachelor of Economics in Monetary Theory and Policy (First Class Honors) from Chulalongkorn University
RATCHANON CHOTIPUTSILPANALYST
Ratchanon’s research interests lie at the intersection of macroeconomics and empirical modeling. In particular, Ratchanon is interested in a research that bridge the gap between theoretical model and data using innovative empirical methods. He has experience working as an RA and TA at Thammasat University and spent several months at MIT as a research assistant.
Ratchanon received his bachelor’s degree and master’s degree in economics from Thammasat University in Theoretical and Quantitative economics (Second Class Honor). He also holds another master degree from The University of Chicago.
PONGSAKORN SRISAKAWKULANALYST
Pongsakorn formerly worked as teacher assistant for many lectures, including financial econometrics, international monetary economics and principle microeconomics. He also received award for his article in TDRI article competition. He was trained form Research Training Program (RTP) faculty of economic, Thammasat University. In addition, He had an internship experience in department of Investment management policy, The Securities and Exchange Commission (SEC)
Pongsakorn received his bachelor’s degree Economics (First-Class Honors) in Economics with a Monetary economics major from Thammasat University under a scholarship form the Bank of Thailand.
