Thailand Economic Outlook

An Expert's View about Business Environment in Thailand

Posted on: 29 Apr 2012

Latest Development
• Thailand’s economic growth slowed to 0.1% in 2011, reflecting the impact of flooding, which began to hit the country in late July of 2011 and lasted for about six months.
• After the anaemic growth in 2011, Thailand's Ministry of Finance has revised up its 2012 economic growth forecast to 5.5% from 5.0% previously.
• Thailand’s inflation stood at 3.5% in March 2012, with policy interest rates standing at 3%.
• Owning to the impact of floods, exports growth slowed to 16% in 2011 from 29% in 2010. Imports also grew at a slower pace of 25% in 2011, down from 37% in 2010.
• Hong Kong’s exports to Thailand fell 9% YoY to US$841 million in the first two months of 2012, while imports plummeted 25% YoY to US$1,217 million in the same period.

Current Economic Situation

Domestic Economy
Thailand is the second largest economy in the 10-nation ASEAN, second only to Indonesia. In 2011, Thailand’s economic growth slowed to 0.1%, resulting from the severe flooding which began to hit the country in late July of 2011 and lasted for about six months. Real GDP contracted 9% year-on-year (YoY) in the fourth quarter of 2011, slashing the annual growth by 3.7 percentage points in 2011. These national-wise floods came at a time when the economy was already struggling from the disruptions of global electronics supply chain as a result of the 3-11 earthquakes in Japan. After six months of flooding, the floodwaters have now receded from the industrial zones, with economic activities mostly returning to normal. On the back of post-flood reconstruction, the economy is expected to bounce up in 2012. Thailand's Ministry of Finance has revised up its 2012 economic growth forecast to 5.5% from 5.0% previously, due mainly to recovering domestic demand and the government's fiscal stimulus measures. The World Bank, after meeting Thailand’s Strategic Committee for Reconstruction and Future Development in late November of 2011, estimated that the floods caused economic damages and losses amounting to US$45 billion.

Headline inflation stood at 3.8% in 2011, up from 3.3% in the previous year. Higher global commodity prices contributed to an acceleration of inflation rate. The core consumer price index, which excludes raw food and energy items, posted an annual growth rate of 2.4%. In light of the government’s decision to implement a national minimum wage of THB300 (around US$10) per day by 2013, wage pressures are likely to increase. In March 2012, headline inflation rate moderated to 3.5%. The Bank of Thailand, the central bank, is expected to keep monetary policy loose in the first half of 2012, with the current policy interest rates standing at 3%.

Owing to the disruption in supply chains after Japan’s disasters and Thailand’s flooding, the growth rate of Thai exports slowed to 16% in 2011, down from 29% in 2010. Thai imports also grew at the slower pace of 25% in 2011, down from 37% in 2010.

Thailand is one of the world’s most important electronics manufacturers. Major exports of Thailand include computers and parts, automobiles and parts, integrated circuits, and rubber; while its main imports included crude oil, industrial machines, chemicals and integrated circuits. The US, Japan and China are Thailand’s main trading partners. Nevertheless, the earthquake and tsunami that struck Japan in March 2011 caused disruption to Thailand’s external sector, especially in relation to automotives and electronics. In addition, Thailand suffered from severe flooding in the final quarter of 2011, disrupting many factories in Thailand. The situation is seen as improving in the first half of 2012, given the recovering production facilities and stimulus measures rolled out by the Thai government.

Foreign Direct Investment

Thailand allows foreign investment in all sectors except for projects related to national security, agriculture and fisheries, and mass media. The country’s Civil and Commercial Code was amended to facilitate the investment process in July 2008, speeding up the company registration process to one day from nine days, and reducing the minimum number of shareholders to three from seven.

Thailand’s FDI totalled US$9.5 billion in 2011, falling 2% from US$9.7 billion in 2010. Japan was the largest FDI investor in that year, followed by Singapore, South Korea, the US, Bermuda, Cayman Island, Switzerland and Hong Kong. Despite the severe floods in the final quarter, FDI flows into Thailand in that quarter recorded 9% YoY growth.

Trade Policy

To meet its WTO commitments, Thailand has been reducing tariff rates and the number of items subject to import tariff. In January 2005, the government significantly cut import duties on a wide range of items: raw materials reduced from 7% to 1%, intermediate products from 12% to 5% and finished products to 10%.

Thailand is a member of ASEAN, which signed an agreement with China to set up a China-ASEAN Free Trade Area (CAFTA) in 2010. A concrete step towards establishing CAFTA came in November 2004, when China and ASEAN hammered out the Agreement on Trade in Goods (TIG) to remove tariffs on a range of agricultural and industrial products. The TIG agreement, which covered tariff-lines representing more than 95% of China-ASEAN trade, took effect from July 2005. The Trade in Services Agreement also came into force in July 2007. CAFTA took effect in January 2010, and over 90% of products traded between China and Thailand are now tariff-free.

In November 2007, the free trade agreement (FTA) between Thailand and Japan came into effect. This FTA allows 97% of Japanese exports to Thailand and 92% of Thailand's exports to Japan to be tariff-free within 10 years.

In addition, Thailand has FTAs with China, Australia, Laos, Peru and New Zealand. Beside, Thailand has embarked on negotiations of FTAs with several economies, including the US, Korea, India, Pakistan, Chile and the EU.

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Posted: 29 April 2012

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