Thailand Economic Performance 2006

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Economic Performance 2006
Thailand’s economy has recorded fairly strong rates of GDP growth in recent years. The economy
recovered from the recessions in 1997 and 1998, when GDP contracted by 1.4% and 10.5% respectively, with growth averaging 4.5% per year in 1999-2000. However, growth slowed in 2001 in response to weak global demand for exports, before picking up again to 5.3% in 2002 and 7% in 2003.

The pace of growth slowed slightly in 2004, to 6.2%, partly reflecting the devastating impact of the outbreak of avian influenza (or bird flu) on the agricultural sector, and dropped to 4.5% in 2005, owing primarily to a contraction in agriculture. GDP in Q4 2006 expanded at a lower rate of 4.2% as compared to 4.7% in 3Q06 reflecting further slowdowns in investment and consumption by both public and private sectors. GDP growth for the year 2006, however, went up to 5.0%.
Inflationary pressure subsided as Q4 saw an inflation rate of 3.3 percent, down from 3.6 percent in Q3.
Lower oil prices, baht appreciation, and softened domestic demand helped contain inflation. The headline inflation rate averaged at 4.7 percent for the year, comparable to 4.5 percent in 2005. Unemployment rate was 1.51 percent, while current account was in surplus of 3.2 billion USD.

Interest rates remained constant in Q4 following a continued increase since 2005. Deposits expanded at a slower pace. Meanwhile credit expansion to most sectors decelerated and thereby liquidity remained high. Thai baht appreciated against the USD throughout most of Q4, driven by large current account surplus together with capital inflows into securities and bond markets. The 30 percent reserve requirement imposed on short-terms capital inflows led baht to depreciate only in a brief period.

Private consumption and investment in the fourth quarter grew by 2.5 and 2.3 percent respectively, continuing the downtrend from the first three quarters. In the first three quarters, private consumption expanded by 3.9, 3.3 and 2.8 percent respectively. Private investment grew by 5.3, 6.4 and 3.8 percent in those three respective quarters. Government expenditure in real term declined by 4.2 percent, while public investment rose by 2.5 percent. Exports showed strong growth and still served as a key driving force, while imports decelerated sharply. Export value was 33,981 million US dollar, expanded by 19.7 percent.

This was as a result of the upturn of electronics cycle and new product and technology
development especially electrical appliances that induce higher exports of electrical appliances
in the latter half of the year following the market demand. Import value was 31,258
million US dollar, increased by 7.2 percent slowing down from 12.2 percent in the third quarter.

In the fourth quarter, the agricultural sector grew only by 0.9 percent due mainly to flood impacts in
several areas exacerbating crops and other vegetable and fruits. Meanwhile, chicken production
slowed down as a result of the bird flu since July. Nonagricultural
sector expanded by 4.6 percent, about the same rate as in the third quarter. Manufacturing and almost all services sectors grew at constant rate. Construction sector, however, decelerated in response to rising interest rate in earlier period which soften demand for residential. In addition, financial sector also slowed down as a result of moderate credit expansion and smaller gap between lending and deposit rates.

The 2007 economy is forecast to grow 4.0-5.0 percent The economic constraints in 2007 will be primarily the limited potential for export growth while the recovery of investment will not be full-fledged.
Supportive factors for growth in 2007 include declining interest rates, lower oil prices and inflation which shall stimulate private consumption and investment. In addition, a larger planned government budget and SOEs’ investment plan than in 2006 is expected to provide cushion for the economy should the targeted disbursement be materialized. However, exports and tourism are likely to expand at a slower pace than in 2006. Economic stability in 2007 will remain strong. Inflation rate of 2.5-3.0 percent, a surplus current account of approximately 1.0-1.5 percent of GDP, and low unemployment rate of 1.5-2.0 percent, are expected.

Infrastructure and transport
Thailand road network covers more than 80,000 km, while the railway network has the total length of 5,000 km. Many projects for improving the infrastructures have been launched; hundreds of them are in the progress of realization in Bangkok in order to solve the problem of chaotic traffic in the capital. The notable project is the sky train (with two lines for total 23.5 km.) inaugurated in December 1999, and the first line of 20 km. of the metropolitan.

The airports: there are 109 airports in Thailand. The international airports are stationed in Bangkok,
Chiang Mai, Phuket, Khon Khaen and Hat Yai. The new international airport “Suvarnbhumi” is in the process of construction in Samutprakarn, 30 km east of Bangkok. The new airport is supposed to help Thailand become the aviation hub in south East Asia.
The ports: there are 8 international ports. The most important one is in Bangkok which centralizes the most part of commercial navigation. Other important commercial stations are those of Map Ta phut and Laem Chabang (on eastern coast) and those of Songkhla and Phuket (in the South of the Country).

Principle export products (Statistics of 2005)
Exports that increased significantly in 2005 included canned fish, processed food, fresh canned and
processed fruits and vegetables, frozen shrimp, processed chicken, vehicles and parts, computers
and parts, polymers and plastic products, construction materials (steel and cement), gems and jewelry, rubber products, printed matter and paper, cosmetics and pharmaceuticals.
Other products that had increased in exports included natural rubber, tapioca starch, electrical appliances, textiles, luggage, leather goods, furniture, and home decorative items.

Products that decreased in exports included rice, sugar (volume down 33.7 percent / value down
12.2 percent due to lower domestic production), tapioca products (volume down 39.6 percent / value down 14.8 percent due to lower exports to Europe, because of lower domestic production and competition from European grains and American corn), fresh chilled and frozen chicken parts
(volume down 82.9 percent / value down 70.0 percent due to fallout fro the bird flu outbreak).
An upward trend in prices moderated the fall in value.

Major Export Markets
Exports to new markets increased 24.1 percent and to traditional market 9.3 percent, boosting the share of new market exports to 40.6 percent of total exports, demonstrating the effectiveness of cooperation between the government and private sectors as well as the impact of FTAs with new and traditional markets as follows:
Exports to FTA markets: India (up 67.7 percent), Australia (up 28.9 percent) and China (up 29.1 percent)
Exports to other new markets: Latin America (up 37.7 percent), Indochina and Myanmar (up 26.0 percent),
the Middle East (up 25.7 percent), Hong Kong (up 24.7 percent), Eastern Europe (up 23.5 percent),
South Korea (up 21.6 percent) and Africa (up 14.7 percent)
Exports to traditional markets increased 9.3 percent: Japan (up 12.3 percent)
ASEAN (5 countries: up 10.9 percent), the US (up 10.0 percent), and the EU (15 countries: up 3.5 percent)