THAILAND ECONOMIC REVIEW: Thailand growth will depend on continuous structural reforms
Dr. Tanvir Orakzai
June 03, 2006
Thailand has been in the news for many reasons, be it violence in the southern province, or consistent bird flu outbreak or the feared Tsunami or political crisis, all of these incidents have placed Thailand in headline news. Despite these predicaments, the Thai economy continues to grow, although at a slower pace. The economic growth in 2005 was expected to reach six percent, but sharp increases in oil prices have slowed down growth rate to 4.6 percent. Tourism is one of the main contributors to Thailand's GDP growth, but it was severely hit during the first quarter by the Tsunami, as a result revenue has dwindled. According to the Asian Development Bank, Thailand current national savings over domestic are in surplus, while external debt also declined.
Economic Growth: Facts & Figures
The slowdown in industrialised economies and easing of China's economic growth will squeeze Thai export performance. In 2005, interest rates have been increased due to inflationary pressure, while economic growth is expected to have moderate pace. The domestic consumption was slow in the first quarter of 2005 as consumers were spending less due to the higher oil prices and rising interest rate trend.
The building and construction sector was 15 percent up in 2004, and this year it recorded low sales in the first half, but it is expected to grow 10 percent at the end of year. The decline in construction has also affected sales of premium grade building and furnishing products. Bangkok’s new airport is one of the recent mega projects completed to boost the economy and bring in revenue; similar mega projects may boost the construction sector in the long term.
The SMEs Factor
Thailand SMEs accounts for ninety percent of the manufacturing, employing 60.7 percent of the country's total workforce. The Thai government introduced several SME development programmes, offering incentives, such as investment promotion, financial assistance and technical and management assistance. In 2002, seven financial institutions provided lending and credit guarantees to SMEs. In 2003, a new venture capital fund was created to encourage people to start their own businesses. According to the SME promotion office, SMEs employed 5.57 million people in 2004.
Manufacturing & Consumption
The growth rate of manufacturing accelerated in the1980s and 1990s, but it came to an abrupt end during the Asian economic crisis. Soaring oil prices have had a huge effect on the domestic car consumption; as a result small engine diesel cars are becoming the choice of consumers. The auto market grew 22.8 percent, with 22.9 percent increase in pickups, 24.1 percent rise in trucks, and 35.5 percent increase in vans, while cars dropped to 13.1 percent. The government promotion of the auto industry has increased acceleration of trade under the ASEAN Free Trade Area (AFTA) with Australia and India. Nissan has announced to relocate its pickup trucks production plant to Thailand to reach the target of 3.6 million units before the end of 2005. Unemployment has also fallen, and job growth is increasing in manufacturing, construction and retail sectors. Steel producers have been burdened with overcapacity and debts since the 1997 crisis, but the merger of Millennium Steel with NTS Steel increased their sales by 25 percent.
The prices in the petrochemical industry have remained high due to Chinese cheap products flooding European and US markets. The industry has seen a drop in prices in the second quarter of this year. Most of the companies have admitted that their performance in the second quarter was less impressive than in the first quarter of 2005. Siam City Cement the country's second largest cement producer sales increased 11 percent compared to the nine percent last year and it expects to sustain its high profit this year.
The Road To Economic Prosperity
Thailand needs huge investment to boost the fundamental infrastructure, such as construction of new roads, waste treatment, improvement in irrigation systems, raising the power grid, more railway track for smooth logistics support. A joint study by the Asian Development Bank, the World Bank and the Japan Bank for International Cooperation estimated that that Asian developing countries need to invest over US$1 trillion in the next five years to support growth. For any government sustaining steady economic growth is crucial for elevating the standards of living of its citizens, especially uplifting the rural middle class. According to the WTO, Thailand economic vulnerability to external factors has declined despite crises, however robust growth will depend on continuous structural reforms and the liberalisation of economy.
Economic Growth: Facts & Figures
The slowdown in industrialised economies and easing of China's economic growth will squeeze Thai export performance. In 2005, interest rates have been increased due to inflationary pressure, while economic growth is expected to have moderate pace. The domestic consumption was slow in the first quarter of 2005 as consumers were spending less due to the higher oil prices and rising interest rate trend.
The building and construction sector was 15 percent up in 2004, and this year it recorded low sales in the first half, but it is expected to grow 10 percent at the end of year. The decline in construction has also affected sales of premium grade building and furnishing products. Bangkok’s new airport is one of the recent mega projects completed to boost the economy and bring in revenue; similar mega projects may boost the construction sector in the long term.
The SMEs Factor
Thailand SMEs accounts for ninety percent of the manufacturing, employing 60.7 percent of the country's total workforce. The Thai government introduced several SME development programmes, offering incentives, such as investment promotion, financial assistance and technical and management assistance. In 2002, seven financial institutions provided lending and credit guarantees to SMEs. In 2003, a new venture capital fund was created to encourage people to start their own businesses. According to the SME promotion office, SMEs employed 5.57 million people in 2004.
Manufacturing & Consumption
The growth rate of manufacturing accelerated in the1980s and 1990s, but it came to an abrupt end during the Asian economic crisis. Soaring oil prices have had a huge effect on the domestic car consumption; as a result small engine diesel cars are becoming the choice of consumers. The auto market grew 22.8 percent, with 22.9 percent increase in pickups, 24.1 percent rise in trucks, and 35.5 percent increase in vans, while cars dropped to 13.1 percent. The government promotion of the auto industry has increased acceleration of trade under the ASEAN Free Trade Area (AFTA) with Australia and India. Nissan has announced to relocate its pickup trucks production plant to Thailand to reach the target of 3.6 million units before the end of 2005. Unemployment has also fallen, and job growth is increasing in manufacturing, construction and retail sectors. Steel producers have been burdened with overcapacity and debts since the 1997 crisis, but the merger of Millennium Steel with NTS Steel increased their sales by 25 percent.
The prices in the petrochemical industry have remained high due to Chinese cheap products flooding European and US markets. The industry has seen a drop in prices in the second quarter of this year. Most of the companies have admitted that their performance in the second quarter was less impressive than in the first quarter of 2005. Siam City Cement the country's second largest cement producer sales increased 11 percent compared to the nine percent last year and it expects to sustain its high profit this year.
The Road To Economic Prosperity
Thailand needs huge investment to boost the fundamental infrastructure, such as construction of new roads, waste treatment, improvement in irrigation systems, raising the power grid, more railway track for smooth logistics support. A joint study by the Asian Development Bank, the World Bank and the Japan Bank for International Cooperation estimated that that Asian developing countries need to invest over US$1 trillion in the next five years to support growth. For any government sustaining steady economic growth is crucial for elevating the standards of living of its citizens, especially uplifting the rural middle class. According to the WTO, Thailand economic vulnerability to external factors has declined despite crises, however robust growth will depend on continuous structural reforms and the liberalisation of economy.
Print
Email
