Thailand's Economic Outlook Leaves No Room For Complacency

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EDITORIAL

Economic outlook leaves no room for complacency

By The Nation

Indicators for the second half of the year do not seem so rosy; businesses must now look to sustainability

The public and private sectors should not be complacent at the buoyant growth rate in the first half of this year. The National Economic and Social Development Board (NESDB) earlier this week warned of deceleration in growth as the demand for Thai goods overseas is set to slow down.

The Thai economy grew by 10.6 per cent in the first half of this year largely due to robust export demand. But that demand is unlikely to be sustained in the second half. The quarter-on-quarter growth during the remainder of the year will be zero or even fall into the negative zone.

The latest forecast should serve as a warning to both the government and private sector that they should, from now on, operate with caution to ensure that the country can withstand the pressures of a changing business environment. There is no room for overconfidence. This should be a time for reflection on how to create sufficient immunity in the Thai economy.

The recent signs of deceleration in demand for Thai exports show that unless our products are of high quality, foreign importers will quite happily shift their orders to other countries where they can find better quality at competitive prices.

Instead of calling for a weaker baht in order to boost exports, Thai manufacturers should now be turning the strong baht to their advantage by investing in upgrading their products and moving up the technological ladder. They should not be looking at producing the same old products in the desperate hope of competing with others through lower prices. The government should also be encouraging those with potential to invest overseas, which would indeed help reduce the current strength of the baht.

Neither should Thai manufacturers and exporters continue to count on labour-intensive industries, because they will certainly lose out to emerging regional competitors with cheaper costs, such as Vietnam and Indonesia. The desperate calls for the Bank of Thailand to intervene on the baht shows that a number of these exporters are still benefiting from lower production costs, in comparison to other regional economies. However, if these manufacturers can transform to producing unique, quality products, they will be gain greater immunity from the fluctuations in foreign exchange.

The Chinese market, which has contributed to the robust export growth, is set to contract. The global economic slowdown, especially in the US and Europe, is likely to have an impact on Thai exports to the Chinese market. Entering the mid-term election season, the US market could be more vulnerable as there are increasing calls from US politicians for trade protectionism to protect their constituencies.

However, businesses should not see the expected deceleration in growth as entirely pessimistic. First of all, it should give pause for thought as to whether the recent robustness has been a matter of economic luck or strength. And to consider the factors that will sustain good growth in the future.

Unfortunately, the Thai economy has been heavily dependent on the export sector in boosting growth, while the other three engines - consumption, investment and government spending - haven't functioned to drive the economy in a sustainable manner.

Sole reliance on the export sector will expose the Thai economy to external risk, which can be disruptive. For instance, the fluctuation in demand can seriously affect the workforce, especially for those in the labour-intensive industries.

Decelerating growth statistics will not matter so much if businesses can continue to operate competitively. The recent concern among many about the slowdown in export demand shows that the success of their businesses is often judged purely by the numbers. But the key question now and in the future will be sustainability.

The other challenge to address is whether the recent high growth has translated into a more even spread of wealth. The statistics show that this may not be the case. Farmers have certainly not seen an overall improvement in their well-being, as agricultural production has contracted as a result of drought and plant disease which has affected output of paddy, rubber, sugar cane, cassava and maize.

If this uneven wealth distribution is not tackled effectively, the recent surprisingly high economic growth rate will be meaningless to the majority.

-- The Nation 2010-08-26

[Pib]

I keep hearing/reading that those countries whose GDP relies heavily on exports could experience a serious economic downturn when consumption rolls off. But, we just went through a financial crisis affecting many major countries who are big importers/consumers which in turn cooled down consumption; however, export countries like Thailand seemed to weather the downturn in good shape. I guess a lot depends on if consumers in the U.S., Europe, and China continue to buy, buy, buy.

The Christmas season (consumers gone wild time of year) is coming up and I expect right about now is when export countries like Thailand are getting lots of orders to stock the Christmas shopping shelves. The upcoming holidays shopping period (primarily Nov thru Dec) will probably set the tone for exports in 2011. A good Christmas shopping period may just mean a good entire 2011 for export countries....or not. Since I can't see into the future, I'll just flip a coin later and make a guess.

[nong38]

Interesting stuff but what does it mean? Good times for Thailand for the present but the world is fickle place. Exporters the world over clamour for a cheaper bhat to help them, that would certainly help all of us who choose to live here, will a falling growth rate mean the exchange rate will be more beneficial to us? That has to be our hope as the bhat continues to strengthen and yet with all this cash that the country seems to have available basic things dont seem to be happening at any pace.

The one thing I do think the article says which is good is that this is a time look at where we go from here. I have not been here that long but I see on the one hand a very resourcful, resilient people who work long hours for a simple and generally happy life. One the other I see far to much beaurocracy, far too many outfits have to give the ok or investigate or study this or that project, same the world over I think,but, it would be nice if someone could streamline it so that things actually get done for the ordinary thai.

I guess that its just a dream though and we just have to hope things inch better and the exchange rate moves in our favour.

[jayboy]

Interesting stuff but what does it mean? Good times for Thailand for the present but the world is fickle place. Exporters the world over clamour for a cheaper bhat to help them, that would certainly help all of us who choose to live here, will a falling growth rate mean the exchange rate will be more beneficial to us? That has to be our hope as the bhat continues to strengthen and yet with all this cash that the country seems to have available basic things dont seem to be happening at any pace.

The one thing I do think the article says which is good is that this is a time look at where we go from here. I have not been here that long but I see on the one hand a very resourcful, resilient people who work long hours for a simple and generally happy life. One the other I see far to much beaurocracy, far too many outfits have to give the ok or investigate or study this or that project, same the world over I think,but, it would be nice if someone could streamline it so that things actually get done for the ordinary thai.

I guess that its just a dream though and we just have to hope things inch better and the exchange rate moves in our favour.

A more optimistic take from the Financial Times

http://blogs.ft.com/beyond-brics/2010/08/23/thailands-economy-roars/

[Abrak]

A more optimistic take from the Financial Times

http://blogs.ft.com/beyond-brics/2010/08/23/thailands-economy-roars/

The FT analysis is more optimistic but actually - given they are analysing the same underlying figures - the Nation's is more relevant.

If you look at the economic picture on a YOY basis you do get a picture of strong 'growth' or strong 'recovery'. However if you look at the statistics on a QOQ basis - growth was only 0.2%. In other words the recovery has happened where do we go from here? Now quite possibly that QOQ growth is understated by the political problems but that is another matter.

Also the export numbers must have been driven to a large extent by a restocking phase after the crisis, so a natural slowdown is inevitable. It is rather typical of the FT in my opinion to only recognize that Thailand is booming well after the event.