Thai growth hits bottom

Posted on 16 November 2007

Source: Bangkok Post, November 16, 2007

Thailand's economic growth this year was expected to reach 4.3 per cent, the lowest in the region, but prospects for 2008 are brighter if the kingdom can overcome its political uncertainties, the World Bank said Thursday.


The World Bank predicted Thailand's gross domestic product (GDP) would be driven in 2007 by a 14.5-per-cent increase in exports and would expand by 4.6 per cent next year.


"It is likely that Thailand's growth this year, like last, will be the lowest among emerging East Asian countries," the bank said in its latest Thailand economic monitoring report.


Despite a 17.5-per-cent appreciation of the Thai baht against the dollar over the past two years, Thailand's exports would jump in 2007, primarily in high-tech sectors, such as the automotive industry and electronics, the bank said.


Those exports are assembled in Thailand from components imported from other countries. "In that sense, the appreciation of the baht is a blessing because imports are cheaper," said Albert Zeufack, the World Bank's senior economist on South-East Asia.


But labour-intensive, high local-content sectors are suffering. The World Bank predicted a 6.5-per-cent decline in Thailand's garment exports this year, a 21.1-per-cent drop in canned fruit and a 7.9-per-cent drop in furniture.


Thailand has underperformed the Philippines and Indonesia, whose currencies have appreciated 19.5 per cent and 19.4 per cent, respectively, against the dollar over the past two years, primarily because of its political uncertainties.


Foreign direct investment inflows in Thailand declined 40 per cent in the first eight months of this year from the same period of 2006. Although inflows were down, applications for new projects at the Board of Investment almost doubled in the same period.


"The political uncertainty factor seems to be the most important one," said Milan Bramhbhatt, author of the World Bank's East Asia Pacific Update.


Thailand experienced a military coup in September 19, 2006, and has been under an interim military-appointed government since then. A general election is scheduled for December 23 with a new government expected to be in place by February. "Given that exports are going good, once the political questions are resolved, it is possible the economy could experience a sharp snapback and growth could improve quite significantly," Bramhbhatt said. Like most economies in East Asia, Thailand's macroeconomic fundamentals are strong. Thailand's inflation rate in 2007 was estimated at 2.2 per cent, and it was expected to have a trade surplus of 10.7 billion dollars and a current account surplus of 11.8 billion.


Overall, emerging East Asia's economy was expected to grow 8.4 per cent in 2007 and 8.2 per cent in 2008, according to World Bank predictions.


In South-East Asia, the World Bank forecast that Indonesia's economic growth would reach 6.3 per cent in 2007 and 6.4 per cent in 2008, Malaysia 5.7 per cent and 5.9 per cent, the Philippines 6.7 per cent and 6.2 per cent and Vietnam 8.3 and 8.2.


The World Bank expected China's economy to grow 11.3 per cent this year and 10.8 per cent in 2008.


The region has survived the crises of 2007 - including the US subprime mortgage debacle, high oil prices and appreciating currencies - but it faces more downside risks from the same in 2008, Brambhatt said.


"A review of the region's performance in previous global downturns suggest that the impact on East Asia is unlikely to be especially severe or protracted, given the region's strong macroeconomic fundamentals and in the absence of a major downturn in global high-tech demand, such as occurred in 2001," he said. (dpa)


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