Recent Development of Thai Economy – Opportunities and Challenges

CHANTAVARN SUCHARITAKUL

Senior Director, International Department

Bank of Thailand 1

Recent Economic Development and Outlook

2

Emerging Asia

3

ASEAN economies picked up and recovered fairly quickly after the 2008 Global Financial Crisis.

Bankruptcy of Lehman Brothers

Greece enters IMF program

%YOY

-10

-5

0

5

10

15

20

Q12007

Q22007

Q32007

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

GDP Growth

ASEAN-5 China Japan US EU TH

Accommodative monetary policy and fiscal stimulus both help to support the Thai economy during the 2008 global financial crisis

5

%p.a.

0

2

4

6

3.25

Dec 2011

Policy Rate

“

“Strong Thailand project “ (FY 2009 -2012), totaling around 3.5% of GDP

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

Fiscal Balance

Greece Thailand

-10.42%

% of GDP

-2%

Nov 2010

Fiscal room available from years of prudent macroeconomic policies

6

13.5

57.8

45.2

42.3

0

10

20

30

40

50

60

70

% of GDP

Sep 2011

Public debt 4,448 billion baht

42.3 % GDP

Fiscal sustainability framework (60 %of GDP)

Figure 1: Thailand’s Public Debt

Fiscal YearSource: Public Debt Management Office

7

Changing Structure of the Thai Economy

0

5

10

15

20

25

30

35

40

Agriculture Mining andQuarrying

Manufacturing Construction Electricity, Gasand Water

Supply

Transportationand

Communication

Wholesale andRetail Trade

Breakdown of GNP by Industry

1980

2001

% of GNP

Recent Economic Development

8

The recovery which began to gather momentum during 2009-2010, was interrupted by domestic and external shocks, economic growth for 2011 is likely to turn out weaker than previously assessed.

% QoQ

Flood

Japanese Natural Disaster

Note: Q4 GDP growth is BOT Staff’s forecast

Global Financial

Crisis

Political Unrest

Source: BoT staff’s forecast at Nov 30, 2011

70

80

90

100

110

120

130

140

Aug-

08

Feb-

09

Aug-

09

Feb-

10

Aug-

10

Feb-

11

Aug-

11

Nov 11

Recent Economic Development

9

Preliminary estimate of total output loss due to the flood is projected at around 2.0% of nominal GDP with manufacturing and agricultural production as well as tourism being among the most severely affected sectors.

1.01%

0.40% 0.07%

0.33%

0.31%

Estimated loss due to the flood for each production sector (%NGDP)

Manufacturing

Agriculture

Restaurants andHotelTrade

* 3 mma and SA

Index* (Pre-crisis = 100) Economic Indicators

Private Investment Export

Private Consumption Manufacturing Production

Comparison of Effect from disasters - NZ earthquake: - 0.6 % of GDP - JP Tsunami: - (2.25 - 4) % of GDP

Export Growth Despite improvement in export growth since the financial crisis in 2008, exports to major export

markets had slowed down since August 2011 and contracted for the first time in October 2011. The contraction is attributed largely to the fall in manufacturing products due to the flood.

Bankruptcy of Lehman Brothers

Greece enters IMF program Flood

%YOY

Nov 11 -13.1

10

11

(%)

Share %∆ 2010

%∆ 2011

Contribution to GDP

2010 H1 Q1 Q2 Q3 Oct Nov YTD Nov-11

ASEAN 22.7 36.5 22.1 20.6 23.5 34.7 14.4 3.2 25.2 0.7

EU (27) 11.2 20.2 20.7 21.7 19.7 22.5 -12.4 -28.0 17.6 -3.0

New EU 1.3 24.1 9.9 5.0 15.2 1.4 -21.6 -19.9 3.8 -0.2

China 11.0 33.2 23.8 24.8 22.7 62.8 21.1 -9.8 35.6 -1.1

Japan 10.5 29.8 28.7 30.2 27.2 21.0 4.2 -8.8 26.0 -0.9

USA 10.3 21.3 19.3 21.3 17.5 5.2 -5.5 -13.9 11.8 -1.4

Hong Kong 6.7 38.5 48.6 70.3 30.1 37.9 -15.1 -43.6

38.3 -3.2

Middle East 4.9 10.1 15.0 15.5 14.6 16.4 -9.8 -32.2

12.9 -1.6

Australia 4.8 9.2 -20.1 -1.3 -

34.5 10.8 -30.3 -33.8

-12.9 -1.4

India 2.2 36.3 23.1 14.8 32.9 19.1 3.2 2.1 19.9 0.0

Growth of Thai Exports to Major Markets

Source: Compiled from Customs Department’s data

12

Breakdown of Goods Exported by Sector (% of Total export goods)

Source: Compiled from Customs Department’s data

2008 2009 2010 2011

1. Agricultural Products 9.0 8.2 8.8 10.8

2. Fishery Products 1.5 1.6 1.5 1.4

3. Manufactured Products 88.0 88.9 88.7 86.6

A. Labor intensive products 9.3 10.8 9.8 9.0

B. High-tech products 62.7 60.6 61.9 58.5

C. Resource-based products 10.5 11.8 11.0 11.8

D. Others 5.5 5.8 6.0 7.3

4. Forestry Products 0.1 0.1 0.1 0.1

5. Mineral Products 1.4 1.1 0.9 1.1

Economic Outlook Economic growth is projected to rebound firmly in 2012 on the back of

domestic demand to help cushion some possible weakness in exports due to global demand slowdown.

14

2.5

-2.3

7.8

1.8

4.8

-4

-2

0

2

4

6

8

10

2008 2009 2010 2011f 2012f

% Y

oY

GDP Growth

Weak global demand

Ineffective government policies (flood prevention and stimulus program)

Relocation of production bases if flood recovery delays

Downside Risks

Source: BoT staff’s forecast at Nov 30, 2011

15

Examples of Government Flood-Relief Measures

Income Support Measures

Expense Support Measures

Credit Measures

-Tax exemption for flood victims

Income tax exemption

Import tax exemption for machinery imports

-Extension of period for tax payment

- Up to 2 years leasing fee exemption for flood-affected property owners

- Provision of free rice seeds for flood-affected farmers

- Expressway toll fee exemption

- Financial assistance scheme for flood– affected households

๐ 5000 Baht Emergency fund

๐ 30,000 Baht Residential restoration fund

๐ 10,000 Baht Household asset restoration fund

Source: Cabinet synopsis, Royal Thai Government website www.thaigov.go.th

Extension of repayment timeframe, exemption or partial payment of interest and waive transfer fees for transfers to flood-affected area

Loan for Micro businesses total 90,000 million Baht

Loan for SMEs total 235,000 million Baht

The Cabinet has approved in January 2012 a set up of the Flood Recovery and Restoration Committee on Infrastructure with a budget of 11,026.607 million baht to specifically focus on flood rehabilitation issues.

Cross Border Collateral Arrangement (CBCA)

16

• In October 2011 Bank of Thailand and the Bank of Japan have collaborated to implement an arrangement for liquidity provision in Thai Baht to Financial Institutions in Thailand utilizing Japanese Government Securities as collateral

• One aim of this measure is to facilitate the funding of financial institutions operating in Thailand including Japanese banks, which provide financial services to firms, including Japanese firms operating in the flood-affected areas of Thailand.

17

Total FDI Gross Inflow from Japan

4,228 5,067

7,825 7,894

3,732

5,505 5,120

0

2,000

4,000

6,000

8,000

10,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2006 2007 2008 2009 2010 11M 2011

Agriculture, Forestry, and Fishing Mining and quarrying

Manufacture of motor vehicles, trailers and semi-trailers Manufacture of electrical equipment

Manufacture of rubber and plastics products Manufacture of machinery and equipment not elsewhere classified

Manufacture of chemicals and chemical products Manufacture of fabricated metal products, except machinery and equipment

Manufacture of computer, electronic and optical products Manufacture of basic metals

Manufacture of of food products Other Manufacturing

Other Sectors Total(RHS)

Million USD Million USD

Challenges and Opportunities

18

19

Where is Thailand?

Source : Michael E.Porter

20

Thailand

Rising China

Troubling U.S. & EU

Realization of AEC

Megatrends

Challenges and Opportunities

Opportunities Challenges

Crises in US and EU

Middle Income Trap

ASEAN Economic

Community

Growing Chinese

middle-class

21

Development of Economic Integration

Source: AEC 2015: Ambitions, Expectations and Challenges (Kanithasen, Jivakanont and Boonnuch, 2011)

22

Opportunity from AEC: Thailand’s strategic location Heart of ASEAN Logistic hub, gateway to Indochina Resource cluster: energy, labor, minerals

23

Dawei (Tavoy) Deep-sea Port Project

Source: Dawei Port: Thailand's Megaproject in Burma by Pavin Chachavalpongpun

Land bridge linking India, Africa and Europe with China and East Asia nations

Lowers transport time of goods by an average of 10 days when compare to tradition sea route through the Malacca Strait

Easier access and transport of energy resource

24

Growing border trade among neighboring countries

THB mn

0

20,000

40,000

60,000

80,000

100,000

120,000

2003 2004 2005 2006 2007 2008 2009 2010

Trade Value

Thai-Cambodia Thai-Laos Thai-Burma Thai-Southern China

• Signed in April 2003 and effective in November 2007

• Extends beyond ordinary FTA schemes to include 3 pillars of

25

Japan-Thailand Economic Partnership Agreement (JTEPA)

Liberalization and Facilitation

•Trade in goods

•Rules of original of products

•Trade in services

•Investment

•The movement of natural persons

Cooperation in 9 areas

•Agriculture, forestry and fisheries

•Education and human resource development

•Financial services

• Information and communication technology

•Science technology

•Energy and environment

•Small and medium enterprises

•Tourism

•Trade and investment promotion

Special Cooperation in 7 projects

•“Kitchen of the World” Project

•“Automotive Human Resources Development Institute” Project

•Japan-Thailand “Steel Industry Cooperation Programmer”

•Cooperative Project in the Textile and Garment Industry

•Energy Conservation project

•Value-Creation Economy Project

•Public-Private Partnership

26

Structure of ASEAN+3 Macroeconomic Research Office (AMRO) as of end 2011

Director

Senior economist

Senior economist

Supporting staff

(Admin) Economist Economist Economist Economist

Members: Distinguished and

respected economists

Advisory Panel

Members: Finance and Central Bank Deputies of ASEAN+3 countries

Executive Committee

(Group 1) (Group 2)

provide strategic, technical and professional guidance to AMRO

Setting broad policy and overseeing operation of AMRO