Will Thai Tiger Roar Again?

[george]

Will Thai Tiger Roar Again?

BANGKOK: -- Thailand, Southeast Asia's second most powerful economy after Singapore, has started to show signs of weakness amid rising oil prices, constant outbreaks of bird flu virus and ongoing violence in the southern part of the country. Most analysts are expecting the economy to cool.

Thailand, which registered a GDP growth of 6.8 percent in 2003, experienced the second highest economic growth seen in any country globally in 2003 after China. Thai authorities had anticipated 2004 GDP growth to be around 8 percent, a target that was set by Prime Minister Thaksin Shinawatra for this year, and 10 percent for next year.

The prime minister's aim was to double Thailand's GDP within the next five years. But he has stated to tame his projections down. "We are hopeful that we will at least register 6.5 percent GDP growth this year," he said over the weekend.

The government think-tank, the National Economic & Social Development Board (NESDB), cut the 2004 GDP growth forecast by a half a percentage point to 6.5 percent, a move similar to that of the Ministry of Finance which had trimmed the GDP forecast just a few days ago. The Ministry of Finance cut its forecast to 6.5-7.0 percent from 7.7-8.1 percent.

Some other analysts are even more pessimistic. "Even these (revised numbers) look subject to more downside than upside risk as the factors slowing domestic demand in the first half of 2004 - bird flu, oil prices, terrorism, political uncertainty - look set to remain in place in second half of this year. We are revising our full year forecast to 6.0 percent from 6.5 percent and expect the consensus (6.7 percent in August) to be doing the same," said Tim Condon, economist at Macquarie Securities in Singapore.

"Everyone is revising GDP growth lower, a remarkable change from a year ago. And we do not believe the downgrades have finished," he said.

Supavud Saicheua, economist at Phatra Securities says that even the 6 percent targets set by the various state-owned agencies and the government would likely be difficult to achieve given that the global economy is likely to slowdown by the end of this year and next year.

He was not alone in voicing these views. Michael Spencer, chief economist at Deutsche Bank based in Hong Kong said that one of the key drivers of the economic growth -- domestic consumer spending -- has shown a remarkable slowdown which could impact the economic growth.

"We look for a slowdown in year-on-year growth to about 5.7 percent and a further slowdown in the fourth quarter. We expect annual average growth this year of 5.7 percent, a mild reduction compared with our previous forecast (the government's forecast has been cut to 6.5 percent, implying an acceleration of growth in the second half of the year). For next year, we expect growth of 4.5 percent - 5.0 percent."

Economists who were among the most optimistic on Thailand's growth prospects have also taken a step back and revised their projections for growth.

"We have revised down our 2004 real GDP forecast from 7 percent to 6.2 percent after weak growth in the first half of the year. However, the cyclical upturn has not been derailed and we expect growth to pick up over the coming quarters as expending bank credit provides a fresh boost to the investment upswing," said Tony Nafte, economist at CLSA Securities.

Still, a handful of economists continues to remain optimistic. Daniel Lian of Morgan Stanley, who has a 6.6 percent GDP growth target set for this year, is optimistic that public investments would start to play a role in the economy. He says that increase in private investment could also help spur the growth during the remainder of the year despite the rising price of oil globally.

"Amidst weakening business sentiment, a slowdown in construction and equipment resulted in private investment rising a slower, but still strong, 12.1 percent year-on-year," he said.

-- By Manjusha Pandey 2004-09-14

[Khun Larry]

Think I may trim back a bit on those emerging market funds

[Dancali]

I'd give it some more time. EM is just about the only asset class that still has a reasonable valuation. Long term I would expect the growing em economies to produce higher stock returns than the saturated economies such as the US.

[Bizz]

We live in an uncertain world. Where we can give predictions and forecasts. Some can perceive to foretell the future.

Until we learn to live in harmony with each other.

The surge in stock market activity and growth in world economies we have learned in the past to except will be curtailed for the near future.

[Indo-Siam]

This century belongs to Asia - just as the 19th belonged to Europe, and the 20th (at least the last half) belonged to North America.

Thailand has a few problems - but its streets are lined with gold compared to its neighbors - Thailand is not competing for regional investment with Luxembourg, or Denmark, or Brazil. It is competing with Myanmar, and Cambodia, and Laos.

Corporations that want to put a factory into an ASEAN country, to take advantage of zero tarriffs under AFTA - for shipments to any of AFTA's 540 million people - where are they going to put their factory? Indonesia (boomtown)? Philippines (volcanos, typhoons, coups, pirates, and at least three major terrorist groups active - JI, <deleted>, ASF)? Vietnam? (OK, this is perhaps second choice - if you can live with Communist government). Malaysia (another possibility)?

Thailand is centrally located bewteen three of the world's most populous countries - China, India, and Indonesia. It has peaceful relations with its weak neighbors. Excellent air interconnectivity, at times its has decent telecom interconnectivity, a democratic (if flawed) government. It is mid-way between the traditional power centers of Hong Kong and Singapore - and much less expensive. Everything in Thailand is rising - average educational levels, health care availability, average income. The government is promoting English language to its population.

I am watching as the overland trade corridors take shape between Kunming, China, and Singapore (through Nong Khai, and skirting Bangkok), and from Assam province in India, to Danang, Vietnam. Ina few years, these two corridors will intersect somewhere near Nong Khai. At that point, look at what happens:

1) Trade goods from southern and western China that have always had to exit China via Shanghai or Hong Kong will now be able to shoot straight south - and then connect west, to India.

2) Trade goods from India, bound for China, Taiwan, Korea, Japan - which have always had to transit theSingapore Straits - will now be able to flow straight east to Danang, and then transit to ships.

Prosperity is Thailand's to lose. And, if they try hard enough, the government leaders here can squandor much of the opportunity.

But - Thailand will be rocking for as far out as I can see. The AFTA agrrement was originally supposed to kick in in 2020. Then, for most key industries, this timetable was advanced to 2010. Then - last year - the priority sectors were advanced to 2008. Now, some are being pushed forward to 2007. This sequence is going to bring lots of manufacturers to Thailand - because a global manufacturer shipping into an AFTA country from outside ASEAN may have to pay up to 30% tarriff - but can reduce that burden to zero by placing its factory inside ASEAN. So - where are they going to put that factory? Look at the SE Asia map - and think about it.

There is certainly "bubble" activity building up - spiraling land prices and over-ambitious construction are going to hurt some investors (or banks) - but Thailand isn't going to go into freefall - because it is competing against such uncompetitive neighbors.

I guess time will tell!

Cheers!

Steve

Indo-Siam

[Sunny Valentine]

Thanks for this fine analysis, Steve. I am just missing the position of Malaysia (with English already established as a major language, much better Telecoms infrastructure, much more efficient education system, .......) in this competition.

Sunny

[Khun Larry]

Looks like time to beef up them Emerging Market funds

[Butterfly]

If Mr Toxin keep feeding his megalomaniac projects, Thailand will go bankrupt again like it did in 1997. This time, IMF will not be around for a rescue as they have been insulted by Thai officials in their recent rescue effort.

[Khun Larry]

If Mr Toxin keep feeding his megalomaniac projects, Thailand will go bankrupt again like it did in 1997. This time, IMF will not be around for a rescue as they have been insulted by Thai officials in their recent rescue effort.

They do enjoy insulting westerners!

[plachon]

If Mr Toxin keep feeding his megalomaniac projects, Thailand will go bankrupt again like it did in 1997. This time, IMF will not be around for a rescue as they have been insulted by Thai officials in their recent rescue effort.

Sounds like old times again, eh, 'Fly? The optimists say that Thailand's got it all, the old cynics like you and me, say it all can go horribly wrong when decision-making is concentrated in the hands of a few cronies. As for the "Asian century", if China makes it past 2020 without imploding, I'd be v. surprised. Strategic position of course helps with economic growth, but in this century it will be wise use of natural resources that decides who sinks and swims. Unfortuntately, some small coral atolls (e.g. Maldives) and low-lying countries (Bangladesh and parts of Thailand e.g. Bangkok and Vietnam) have got a damp awakening to come, no matter how wise they are. I'd be putting my shekels in renewable energy stocks and pollution-control companies, if i had any to spare.

[p_brownstone]

All these analyses ignore the probable consequences of certain events – some likely, some inevitable.

Some examples:

1) The growing frustration and downright anger of the educated Middle Classes and Business elite that they are increasingly aware that there is no credible alternative to the present Government so long the populist policies are attracting the mass upcountry voters and the policy corruption is favouring certain business empires over any competition.

Prominent Social and Political commentators have already voiced – if not advocated – real Revolt or violent removal of this Government or some of its senior figures as the only way to stop the erosion of hard won civil liberties and the slide into authoritarianism.

I have lived through several revolutions here, 3 quite bloody, and anyone who thinks that such a scenario is not possible any more is not listening to the rumblings.

2) The current Government giveaways to maintain its popularity at the grassroots level simply cannot continue, for example large portions of the SML Funds will simply be used to pay off debts or corruption caused by the earlier Baht 1 million per village scheme, and both these and other programs have caused a huge increase in household debt which must eventually implode. Government policies are having a serious negative effect on Thailand’s two main foreign exchange earners, Tourism and Agriculture, so this time the bankruptcies will be at a personal level – farmers are already being encouraged to mortgage their Land for example – and having been seduced away from decades old reliance on self sufficiency and begun to rely on government largesse Once the giveaways stop the rural population too will be in a violent mood.

3) Finally, sadly, it cannot be too much longer before the most respected and revered figure in Thailand is no longer there as a symbol of stability and honesty; and none of the possible successors can command anything like the same love and devotion. The succession itself will lead to conflicts between factions in the Military and the Police, possible within the Government too; once again a formula for serious unrest.

One or two of these developments occurring within a short period - and of course one event could precipitate another - could destabilise Thailand as nothing has done before.

[PeaceBlondie]

This discussion is really impressive and informative. Indo-Siam and p brownstone, thanks so much.

Steve, about those overland trade corridors you mentioned - how do goods go from Kunming, in southern China, to centrral Thailand? Does it require new superhighways? What about rail shipping, intermodal transport, and fully modernized intermodal shipping ports? I don't see freight trains going from Chiang Mai, southward.

brownstone, your sobering analysis is a counterweight to Steve's optimism, and you both stated your positions well. Nothing lasts forever, even cold November rain and benevolent leaders.

[Butterfly]

If Mr Toxin keep feeding his megalomaniac projects, Thailand will go bankrupt again like it did in 1997. This time, IMF will not be around for a rescue as they have been insulted by Thai officials in their recent rescue effort.

Sounds like old times again, eh, 'Fly? The optimists say that Thailand's got it all, the old cynics like you and me, say it all can go horribly wrong when decision-making is concentrated in the hands of a few cronies. As for the "Asian century", if China makes it past 2020 without imploding, I'd be v. surprised. Strategic position of course helps with economic growth, but in this century it will be wise use of natural resources that decides who sinks and swims. Unfortuntately, some small coral atolls (e.g. Maldives) and low-lying countries (Bangladesh and parts of Thailand e.g. Bangkok and Vietnam) have got a damp awakening to come, no matter how wise they are. I'd be putting my shekels in renewable energy stocks and pollution-control companies, if i had any to spare.

hey plachon, absolutely. Anyone who has lived here for more than 10 years will know why

Hey, if you want to talk Thai economics and stock market, a few buddies and I have opened a new forum : http://forum.thaiequity.com

Join me over there, but you need to register first. Otherwise PM me to get more info.

[Indo-Siam]

With respect to movement of goods along the main trade routes, there are still some big obstacles to overcome. One of the biggest involves the lack of dual rail track throughout the region - all of the State Railway of Thailand's track is single track - meaning that freight (and passengers) can only move in one direction at a time (if trains moving in opposing directions meet, one must divert to a siding).

I have participated in a meeting at the State Railway of Thailand between SRT officals and a consultant representing of the Japanese Government (who was my company's client), exploring opportunities to establish an improved rail network in Thailand. It is a big issue - and a VERY expensive proposition.

Virtually all SRT operations are running at a substantial loss right now. The one thing keeping the SRT afloat is its operations as a landlord - it owns immensely valuable property - including all the land under the Chatuchak market area, and all the land under the Pratunam and Contral World Plaza areas (and perhaps 100 other comparable sites). That (along with the destruction of NYC namesakes) is why the name changed from "World Trade Center" to "Central World Plaza" - the WTC organization's lease an out - the SRT increased the rent, and WTC dropped out - and was replaced by the Central Group.

A bidding process is trying to get started in Laos right now (amid various charges of corruption and non-transparency) to build the rail network accross the Friendship Bridge at Nongkhai. The bridge from Svannnahket to Mukdahan is now under construction, scheduled to be finished in December 2005 (so - figure summer of 2006). Significant highway construction is now underway from Kunming, and into the northern proivinces of Laos. All this stuff is happening.

Cheers!

Steve Sykes

Managing Director

Indo-Siam Group

[email protected]

www.thaitradedata.com

[Heng]

1) The growing frustration and downright anger of the educated Middle Classes and Business elite that they are increasingly aware that there is no credible alternative to the present Government so long the populist policies are attracting the mass upcountry voters and the policy corruption is favouring certain business empires over any competition.

Yeah, when will there be a real government that sympathizes with the plight of the middle and upper middle classes?

-Fed Up (and fat) in Bangkok