Second Half Expected To Pose Challenge To Thai Gdp

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THAI GDP

Second half expected to pose challenge to Thai GDP

ACHARA DEBOONME

THE NATION

BANGKOK: -- Thailand surprised global economists with 4.2-per-cent economic growth in the second quarter against the consensus of 3.1 per cent. However, hard times are coming in the second half when the euro-zone crisis is set to deepen and drag down Thailand's exports while creating greater volatility in capital flows across Asean. Along the way, authorities need to stay fully alert.

In its "Credit Outlook" report last week, Moody's Investors Service praised Thailand for the unexpectedly strong quarterly results.

Thailand and some other Southeast Asian nations have shown resilience in the face of the global crisis, bucking the trend of lacklustre growth in other parts of Asia, particularly in China and the newly industrialised economies of Hong Kong, Singapore, South Korea and Taiwan. Thailand's economy grew 4.2 per cent year-on-year, up from 0.4 per cent in the previous quarter. Indonesia's real GDP accelerated 6.4 per cent in the second quarter from 6.3 per cent in the first quarter, while Malaysia's rose 5.4 per cent from 4.9 per cent. The Philippines economy, which grew 6.4 per cent in the first quarter, is expected to show a similarly healthy second-quarter performance.

Growth in other Asian countries reliant on international trade was hurt more due to the weak demand in the US and euro area. But as China's growth decelerated to 7.6 per cent year on year in the same period, its lowest pace since first-quarter 2009, this raised the threat of a negative spillover into the rest of Asia, given China's role in stimulating the region's recovery following the global financial crisis.

Today, Commerce Minister Boonsong Teriyapirom is calling a brainstorming session with exporters from key sectors. After earlier setting a 15-per-cent export growth target, the ministry is now under pressure to come up with a more realistic target. This month, the Bank of Thailand, Fiscal Policy Office and Thai National Shippers' Council are expected to revise downward their export growth forecast to 5-6 per cent, as the July export slump pulled down exports in the first seven months of this year by 0.4 per cent.

Like Indonesia and Malaysia, Thailand's exports significantly weakened economic growth but domestic demand, particularly private consumption and investment, has offset the contracting exports.

"In Thailand, the continued recovery following last year's floods has driven construction activity and private capital spending. Historically high rates of gross fixed capital formation are partially attributed to Malaysia's wide reaching Economic Transformation Programme and, in Indonesia, strong inflows of foreign direct investment in recent quarters. In each of these countries, low inflation has sustained favourable consumer sentiment and private household spending," Moody's said.

Amid the gloom in the euro zone and US, the Asean-5 economies - Indonesia, Malaysia, the Philippines, Thailand and Vietnam - have been able to withstand the headwinds well.

According to Moody's, the relatively small contribution of public consumption to overall growth year to date suggests a degree of policy flexibility for these governments to pursue stimulus spending. Benign inflation and relatively healthy external buffers contribute to stable financing conditions. The buoyancy of fiscal revenue reflects healthy labour markets and the continued profitability of businesses, both of which are correlated to high economic growth. Nevertheless, commodity price volatility will have differing effects on fiscal revenue, while expenditures will likely be muted by smaller subsidy bills.

"Although developing Asean's immunity to external headwinds may not last for long, central banks in these countries have the flexibility to cut rates to stimulate activity and relieve pressure on fiscal authorities to increase deficit spending, thereby raising debt ratios. Thailand has already cut its policy rate twice to aid flood reconstruction," it said.

According to HSBC Global Research, with relatively strong economic fundamentals, Thailand saw its real GDP return to its pre-crisis peak within five quarters of the Lehman Brothers fiasco in 2008. The suffering lasted nine quarters when it faced the Asian crisis in 1997.

Challenges lie ahead, though. Forecasting a 0.6-per-cent contraction in the euro zone this year and expecting the situation in the zone to stabilise in the next 6-12 months, HSBC said capital flows would be a big issue for Thailand and the other Asean-5, based on the fact that capital flows have had a big impact on credit growth in Asia over the past 20 years. These countries are more vulnerable to capital flows, inward or outward. If the global economy enters a deep recession, massive capital outflows would tighten credit and hurt growth. On the other hand, if things improve and capital inflows rise substantially over 12 months, there's a risk of a credit bubble.

Thailand along with Asia has attracted inflows now, providing relatively safe investment bets. This year, foreign investors have remained net-buyers of Thai shares by over Bt60 billion. A larger amount is going to the bond market. Concurrently, in June and July, banks showed loan growth of over 16 per cent. The Bank of Thailand has insisted that there is not yet a sign of a bubble, particularly in real-estate lending, which sparked the 1997 crisis. According to HSBC, greater capital inflows are anticipated in 12 months and this may ignite tightening measures. But the outflow scenario is also on the cards.

Expecting mild recession in the euro area, HSBC noted that Asean-5 still has scope to manage the crisis this time. In both Thailand and the Philippines, fiscal policy is already geared to provide support this year, which will help cushion against the impact from capital reversals and global headwinds more generally.

-- The Nation 2012-09-03

[Thait Spot]

The balance of payments will take a real hit. Domestic spending on imports and items produced domestically by foreign companies such as car manufacturers will see a larger outflow whilst exports drop.

[GentlemanJim]

And just who issues the figures that tell us growth was at 4.2 % ? This wouldn't be a white lie from Kittiratt to make Thais (and investors) feel good would it? How can we now believe anything that comes out of the Finance Ministry?

Edited September 3, 2012 by GentlemanJim

[lovelomsak]

The balance of payments will take a real hit. Domestic spending on imports and items produced domestically by foreign companies such as car manufacturers will see a larger outflow whilst exports drop.

Being a simple layman I find it difficult to understand your post.

But yes I also see automobile manufacturing as doing well in both the domestic and export areas. The saving grace for the economy will be rice exports.Yes rice.In the not too distant future Thailand will be back on top of rice sales and will get their price. There is going to be a shortage of rice on the market and buyers will either have to stop buying and leave the market place or they will have to pay the Thai price asked. Which do you think will happen?

[belg]

you see: its the fault of farang again

why do they need to have an economic crisis

always blame someone else

[rubl]

In the topic about "Economy: Thailand Is 'equipped For Euro Crisis'" on the end of last month the Bank of Thailand Governor Prasarn Trairatvorakul talking before a group of 122 global funds managers already said

"To achieve 7-per-cent export growth this year will be difficult, as that would require exports to exceed US$22 billion each remaining month. If exports run lower than $20 billion a month, the growth rate for the whole year would be only 4 per cent

...

The central bank recently revised its 2012 economic growth forecast from 6 per cent to 5.7 per cent, with support coming mainly from domestic consumption and investment."

Of course our local expert PM Yingluck was optimistic (three months ago, 2012-05-31):

"PM Yingluck projects 2012 Thai economy to grow 5.5-6.5%, inflation 3.5-4% despite world economic downturn /MCOT"

[Skywalker69]

In the topic about "Economy: Thailand Is 'equipped For Euro Crisis'" on the end of last month the Bank of Thailand Governor Prasarn Trairatvorakul talking before a group of 122 global funds managers already said

"To achieve 7-per-cent export growth this year will be difficult, as that would require exports to exceed US$22 billion each remaining month. If exports run lower than $20 billion a month, the growth rate for the whole year would be only 4 per cent

...

The central bank recently revised its 2012 economic growth forecast from 6 per cent to 5.7 per cent, with support coming mainly from domestic consumption and investment."

Of course our local expert PM Yingluck was optimistic (three months ago, 2012-05-31):

"PM Yingluck projects 2012 Thai economy to grow 5.5-6.5%, inflation 3.5-4% despite world economic downturn /MCOT"

PM Yingluck hasn´t a clue. She says what she been told to say.

[laocowboy2]

I am not so sure about there being any shortage of rise this year. India may have had a poor monsoon but the stores are still full from last year's bumper crop - and India is selling rice abroad. Ditto Vietnam. While the US has had a drought, this has impacted corn (used for animal feed and gasohol) rather than wheat - and rice is anyway not really a substitute for other food crops.

[rubl]

I am not so sure about there being any shortage of rise this year. India may have had a poor monsoon but the stores are still full from last year's bumper crop - and India is selling rice abroad. Ditto Vietnam. While the US has had a drought, this has impacted corn (used for animal feed and gasohol) rather than wheat - and rice is anyway not really a substitute for other food crops.

If indeed rice will not be in short supply, the only reason it's price not dropping here for Thai consumers would probably the government THB 350 billion rice price pledging scheme to make farmers rich (and only a handful of middlemen).

[indyuk]

In the topic about "Economy: Thailand Is 'equipped For Euro Crisis'" on the end of last month the Bank of Thailand Governor Prasarn Trairatvorakul talking before a group of 122 global funds managers already said

"To achieve 7-per-cent export growth this year will be difficult, as that would require exports to exceed US$22 billion each remaining month. If exports run lower than $20 billion a month, the growth rate for the whole year would be only 4 per cent

...

The central bank recently revised its 2012 economic growth forecast from 6 per cent to 5.7 per cent, with support coming mainly from domestic consumption and investment."

Of course our local expert PM Yingluck was optimistic (three months ago, 2012-05-31):

"PM Yingluck projects 2012 Thai economy to grow 5.5-6.5%, inflation 3.5-4% despite world economic downturn /MCOT"

PM Yingluck hasn´t a clue. She says what she been told to say.

On what basis are you able to make this statement repeatedly. Your opine seems to be noxious vapor.

Unless of course you are able to come up with an intelligent quote that reveals that you know what you are talking about.

[IMA_FARANG]

This is only slightly relevant to the topic....but.....did anyone else see the BBC World Service story that for the 2nd month in a row Chinese exports DECLINED in August?

Question....what does that mean to China, Southeast Asia and Thailand?

[IMA_FARANG]

As kind of a comment on this article....did anyone...besides me....se this BBC World Service business news story?

China manufacturing dips to a nine-month low in August.

source: http://www.bbc.co.uk/news/business-19461292

Am I wrong or isn't manufacturing activity known as a "leading indicator"?

[Thait Spot]

The balance of payments will take a real hit. Domestic spending on imports and items produced domestically by foreign companies such as car manufacturers will see a larger outflow whilst exports drop.

Being a simple layman I find it difficult to understand your post.

But yes I also see automobile manufacturing as doing well in both the domestic and export areas. The saving grace for the economy will be rice exports.Yes rice.In the not too distant future Thailand will be back on top of rice sales and will get their price. There is going to be a shortage of rice on the market and buyers will either have to stop buying and leave the market place or they will have to pay the Thai price asked. Which do you think will happen?

I see the government having such success with exporting the mountains that they currently hold that Iran is now a key potential customer........

[SICHONSTEVE]

And just who issues the figures that tell us growth was at 4.2 % ? This wouldn't be a white lie from Kittiratt to make Thais (and investors) feel good would it? How can we now believe anything that comes out of the Finance Ministry?

Confidence in these figures will always be doubted, following his admission of lieing about the numbers!!!!

What a doughnut head this pathetic man is.

[Dap]

And just who issues the figures that tell us growth was at 4.2 % ? This wouldn't be a white lie from Kittiratt to make Thais (and investors) feel good would it? How can we now believe anything that comes out of the Finance Ministry?

Ya' think someone may be cookin' the books?

[rubl]

Terribly sorry to revive this subject. Somehow I seem to have missed an update on GDP forecasts. Maybe snowed under with all those government reports on their wonderful first year accomplishments ?

[smutcakes]

In the topic about "Economy: Thailand Is 'equipped For Euro Crisis'" on the end of last month the Bank of Thailand Governor Prasarn Trairatvorakul talking before a group of 122 global funds managers already said

"To achieve 7-per-cent export growth this year will be difficult, as that would require exports to exceed US$22 billion each remaining month. If exports run lower than $20 billion a month, the growth rate for the whole year would be only 4 per cent

...

The central bank recently revised its 2012 economic growth forecast from 6 per cent to 5.7 per cent, with support coming mainly from domestic consumption and investment."

Of course our local expert PM Yingluck was optimistic (three months ago, 2012-05-31):

"PM Yingluck projects 2012 Thai economy to grow 5.5-6.5%, inflation 3.5-4% despite world economic downturn /MCOT"

PM Yingluck hasn´t a clue. She says what she been told to say.

Whilst i don't doubt that, how many of the world leaders are doing anything more than relaying information from a support team?

[Robby nz]

Wonder if this will be because of or in spite of Govt policy?

[rubl]

PM Yingluck hasn´t a clue. She says what she been told to say.

Whilst i don't doubt that, how many of the world leaders are doing anything more than relaying information from a support team?

At least 'world leaders' seem to be able to afford a decent support team

So what about an update on GDP forecasts? With the MoC expecting to export almost 2.5m ton of rice in the last two months of the year, things are looking bright?

[rubl]

Sneakily hidden in the topic of the Obama victory I found

"Thailand's finance ministry remains confident that economic growth this year will reach 5.5 per cent and 5.2 per cent next year."

In August there was a downgrade of the expected GDP from 6.0 to 5.7%. Mind you the original expectation was 4.8 - 5.0% with the PM regularly going on record with 5.5 - 6.5%. It's almost like the expected tonnage of rice to be exported this year. Both supported by spending lots of taxpayers money

[Thai at Heart]

I am not so sure about there being any shortage of rise this year. India may have had a poor monsoon but the stores are still full from last year's bumper crop - and India is selling rice abroad. Ditto Vietnam. While the US has had a drought, this has impacted corn (used for animal feed and gasohol) rather than wheat - and rice is anyway not really a substitute for other food crops.

Rice is never going to make up the difference. 900 USD per tonne would just about pay for itself. How many tonnes per laptop, car or mobile phone need to be exported? If they get out of the rice mess at break even, it will be an absolute miracle.

[Thai at Heart]

After earlier setting a 15-per-cent export growth target, the ministry is now under pressure to come up with a more realistic target

I love this quote so much.

But boss, do I get my yearly bonus if I miss the target?