1 Thailand Economic Monitor November 2005 Launch 3 November 2005.
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Transcript of 1 Thailand Economic Monitor November 2005 Launch 3 November 2005.
1
Thailand
Economic MonitorNovember 2005
Launch3 November 2005
2
Monitor – Key Messages
Tsunami, drought and oil price rise will reduce GDP growth in 2005 to 4.2%. GDP growth in 2006 will rise to 5%.
Floating of retail oil price is judicious Limit burden on Oil Fund Promote more efficient use of oil and energy
conservation – Reduce oil imports, which helps reduce current account deficits
3
Monitor – Key Messages
Helping firms to reduce production and operation costs will help them in adjusting to high oil prices Improving the Investment Climate can help
reduce costs and also improve firm’s productivity
Key improvements to investment climate needed Reduce regulatory burden Upgrade skills Improve infrastructure
(Results of Thailand Productivity and Investment Climate Study)
4
Real GDP Growth will be 4.2% in 2005
GDP growth is expected to speed up in the second half year as net foreign demand increases
Real GDP Growth 2005
Source: NESDB and World Bank
0
5
10
15
20
25
30
Priv
ate
C
Gov
ernm
ent C
Priv
ate
I
Publ
ic I
Exp
orts
Impo
rts
Ann
ual %
cha
nge
H1 2005 H2 2005 p 2005p
Growth rates of Change in Inventories
H1 2005 = 85.8%
H2 2005p= -45.8%
2005p= 20.0%
5
Sharp oil price rise impact growths of consumption, private
investment, and production this year
Retail oil price this year is 54% higher than in 2002 Raises 2005 inflation to
4.5% – affects consumption
Raises costs of production – affects production and private investment this year
Increase in Retail Oil Price (%)
0
10
20
30
40
50
60
2002-2005 2003-2005 2004-2005
perc
enta
ge c
hang
e
Source: EPPO
6
Rise in retail oil price are promoting conservation
Growth in Gasoline and Diesel Consumption, 2002- 8M 2005
Source: EPPO
-10
-5
0
5
10
15
2002 2003 2004 8M2005
perc
ent,
y-o-
yGasoline High Speed Diesel
7
Exports growth to speed up in 2005H2, while imports slowed
Export Volume Growth
-5
0
5
10
15
20
25
30
2004 H1 2005 Q3 2005
per
cen
tag
e ch
ang
e, y
-o-y
Consumer Goods Raw Materials Capital Goods
Fuel & Lubricant Total
-15
-10
-5
0
5
10
15
20
25
30
35
2004 H1 2005 Q3 2005
per
cen
tag
e ch
ang
e, y
-o-y
Agricultural products Fishery products
Manufactured products Total
Import Volume Growth
Source: BOT Source: BOT
8
FDI are still increasing
Gross FDI inflows rose in 2005 and much higher
than 1988- 1992 levels
0
1
2
3
4
5
6
7
8
Avg1988/92
2003 2004 8M 2004 8M 2005
Bill
ions
of
US$
Gross FDI Inflows
Source: BOT
9
Real GDP growth will rise to 5% in 2006 as domestic demand picks up
Real GDP Growth 2004, 2005p and 2006p
Oil price will rise by 14% in 2006, compared to 30% this year
Real interest remains low at 4-5%
Bank loan continues to expand
Source: NESDB and World Bank
0
2
4
6
8
10
12
14
16
18
Priv
ate
C
Gov
ernm
ent C
Priv
ate
I
Publ
ic I
Exp
orts
Impo
rts
Ann
ual %
cha
nge
2004 2005p 2006p
Growth rates of Change in Inventories
2004 = 39.9%
2005p = 20.0%
2006p = 0%
10
FDI will continue the rise as Thailand remains attractive
0
50
100
150
200
250
300
350
400
2002 2003 2004 Jan-Sep2004
Jan-Sep2005
Bt B
illio
n
100% foreign equity10%<foreign equity<100%
BOI Approval of FDI
Source: BOI
Top 1 China
Top 2 India
Top 3 THAILAND
Top 4 Vietnam
Top 5 South Korea
Ranking of FDI Prospects in Asia 2005-2008
UNCTAD Survey of world’s 325 largest transnational corporations
Source: UNCTAD Global Investment Prospects Assessment, Sep 2005
11
External environment will be more favorable next yearExternal Environment, 2004-2006
Source: World Bank DEC Prospects Group update Oct. 25, 2005.
a/ In local currency, aggregated using 1995 weights.
The G-7 countries are: Canada, France, Germany, Italy, Japan, United Kingdom, and United States.
2003 2004 2005p 2006p
% Change from previous year, except interest rates
GDP Growth
World 2.5 3.8 3.1 3.1
World (PPP Weights) 3.9 5.0 4.4 4.3
OECD 1.8 3.0 2.4 2.5
United States 2.7 4.2 3.5 3.5
Japan 1.4 2.6 2.3 1.8
Euro Area 0.7 1.7 1.1 1.4
World Trade (Volume) 5.8 10.3 6.4 7.0
CPI Inflation - G7 a/ 1.5 1.7 2.2 2.0
Oil Price - $/bbl 28.9 37.7 53.6 56.0
- % Change 15.9 30.6 42.1 4.5
Non-oil Commodity Prices 10.2 17.5 11.9 -5.9
LIBOR (US$. 6 Mo.) 1.2 1.7 3.8 5.0
12
Going forward, higher private investment growth needed to avoid supply constraints
Capacity Utilization
• Over 1/3 of sectors have Cap U > 80%
• More than half of
high exporting
sector have cap u >
80% or > pre-crisis
levels
Weights Ave 8M 95/96 8M 2004 8M 2005Capacity utilization 59.10 76.41 67.86 70.41
CU in 8M 2005 >90% 9.3 Soy milk 0.1 54.6 115.1 131.5 Tin metals* 0.1 31.0 59.5 103.6 Compressor* 0.2 67.4 92.5 101.6 Craft paper 0.6 n.a. 81.2 101.0 Intermediate petrochemical 0.7 56.0 98.6 100.1 Hard disk drive* 4.7 n.a. 71.5 100.0 Printing & writing paper 0.2 n.a. 89.7 95.4 Rubber glove* 0.3 n.a. 93.3 95.0 Synthetic fibres 0.8 86.8 103.2 92.6 Downstream petrochemical 1.2 126.9 95.5 92.2 Upstream petrochemical 0.4 42.0 93.8 91.080%<CU in 8M 2005 <90% 15.0 Concrete products 0.2 n.a. 71.1 89.6 Pulp 0.6 77.6 92.3 88.9 Tyre 0.9 88.3 87.8 88.8 Zinc metals 0.1 92.1 95.5 87.3 Motorcycle 0.7 79.3 78.9 86.7 Petroleum products 9.5 87.5 84.1 86.3 Washing machines* 0.1 72.0 93.9 84.7 Air-conditioners* 0.9 90.3 82.0 81.8 Commercial car 2.1 86.5 72.2 81.8 Paper board 0.0 n.a. 77.5 80.4
Source: BOT
13
Improved investment climate helps to promote investment and firm productivity
Helps reduce cost of doing business – more urgently needed as firms face high oil prices
0 10 20 30 40 50 60 70
Infrastructure andSupport Services
Skilled Labor Shortage
Regulatory Burden
Percent of Firms Identifying Issues as One of Three Top Obstacles
Firms’ Concerns about Business Climate – Results from Thailand Productivity and Investment
Climate Study
Source: Thailand PICS, 2005
14
Reducing regulatory burden reduces firms’ costs in doing business
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Hiring procedures forlocal workers
Hiring procedures forforeign workers
Layoff procedures/costof retrenchment
Limits on temporaryhiring
Inflexible salary scalefor skilled workers
Perc
ent o
f Fir
ms I
dent
ifyin
g R
egul
atio
n as
"Se
vere
" or
"V
ery
Seve
re"
Obs
tacl
e
Thailand Malaysia
Avg St. Dev Coeff Variation
Ministry of Commerce 10 20 1.9
Department of Industrial Works 17 22 1.3
Immigration Department 10 14 1.4
Land Office 13 22 1.7
Local Government 10 15 1.6
Labor Regulations Obstacle
for Firms in Thailand
Number of Days to Obtain Different Licenses/Permits/Approvals/ Certificates
Source: Thailand PICS, 2005
Source: Thailand PICS, 2005
15
Reducing skills shortage can help reduce large wage premiums and firms’ loss of sales
Thailand’s Wage Premiums(Total Returns Relative to Workers with Less than
Secondary Education Complete)
Sales Gain from Reduction in # Weeks Taken to Fill Vacancy for a Professional
Source: Thailand PICS 2005 Source: Thailand PICS 2005
Machinery/Equipment
Wood Products/Furnit.
Rubber/Plastics
Electronics/Elec. Appliances
Auto-parts
Clothing
Textiles
Food Processing
4
5
5
6
6
7
7
8
8
9
0 5 10 15 20 25 30 35 40 45 50
% Sales Gain from Reduction in Skill Shortages
Num
ber
of D
ays T
aken
to F
ill L
ates
t Vac
ancy
fo
r a
Prof
essio
nal
# w
eek
s ta
ken
to
fill
vac
ancy
Skills shortage vary from sector to sector Sector with more binding constraints can increase sales by more if
constraints are relaxed Average sales loss across sectors is 15%
0
5
10
15
20
25
30
35
40
45
50
High school/Por Wor Chor
Por Wor Sor College Degree
per
cen
t
16
Improving skills will help increase firms’ technological capacity
• Lack of skilled ICT workers is the major constraint to firms’ expansion of ICT use
• ICT use correlates with innovation
Source: Thailand PICS 2005
Constraints to Introducing or Expanding IT Use Considered “Important” or “Very Important”
Constraints Small Medium Large
Lack of knowledge and trained IT personnel 42% 35% 33%
Lack of experienced consultants to provide or design IT-based solution systems 39% 37% 32%
High cost of IT equipment and maintenance 20% 18% 18%
Low returns to investments in IT 15% 12% 11%
17
Infrastructure Inadequacy needs to be addressed
Frequency of Phone Interruptions Last Year
0 1 2 3 4 5 6 7
Indonesia
Philipines
Brazil
Malaysia
Thailand
Percentage of Water Coming from Own Sources
0 10 20 30 40 50 60 70
Malaysia
Brazil
Philipines
Thailand
Indonesia
Electricity, transport, telecommunications, and water services need to be improved
CityPopulation (Million
persons)Length of Mass Rail Transit
Lines (Km.)Bangkok 9 44KL 1.4 65Manila 10 46Hong Kong 7 219Singapore 4.2 89London 7.4 463Beijing 13 113
Cross Country comparison of Mass Rail Transit LengthNumber of Times of Power O utage
0 5 10 15 20
Turkey
Russia
China
Malaysia
Thailand
Source: Thailand PICS 2005
18
The Thai Government is consistently pursing these issues
Regulatory burden: – Public sector reforms– A committee has been established to take these
issues forward
Skills shortage:– Education reform – secondary education and
vocation education
Inadequate infrastructure– Public infrastructure investment plan (Mega-
project)
19
Public investment in infrastructure is needed and timely
• Proposed public investment program is needed, given reduced investments since the crisis
• Estimated impact on fiscal & current account balance & debt, appears consistent with medium-term macro-stability, given current state of private investment recovery
• Infrastructure program should be prioritized to reduce cost & raise quality of infrastructure services so that private investors’ competitiveness can be increased
20
Public Investment as % GDP 2005-09
Source: Cabinet meeting Nov 1, 2005 and WB GDP estimations Source: FPO, Sept 26, 2005 and Cabinet meeting Nov 1, 2005
Mega-project Import Content, 2005-09
0
1
2
3
4
5
6
7
8
9
10
2005 2006 2007 2008 2009
% G
DP
Non-megaprojectMega-project
0
50
100
150
200
2005 2006 2007 2008 2009B
illio
n B
t
0.0
0.5
1.0
1.5
2.0
2.5
% G
DP
Import content (LHS)% of GDP (RHS)
Mega-project investment plan appears consistent with medium-term macro-stability
Given current state of private investment recovery, estimated impact on fiscal, current account, & debt, appears consistent with macro-
economic stability
21
Current account deficits are not excessive
Current and Trade Accounts
Source: BOT for 2003-04 and WB estimates for 2005-06
-10
-8
-6
-4
-2
0
2
4
6
8
10
2003 2004 2005p 2006p
US$
Bill
ion
-8
-6
-4
-2
0
2
4
6
8
% o
f G
DP
Current AccountTrade AccountCurrent Account (% GDP)Trade Account (%GDP)
22
Mega project investments by sector Getting to the details
Verifying the strategic importance of each investments
Establishing sector investment priorities
Making financial sense
Establishing a mechanism to ensure quality throughout project preparation and implementation
Getting to the details
Verifying the strategic importance of each investments
Establishing sector investment priorities
Making financial sense
Establishing a mechanism to ensure quality throughout project preparation and implementation
Source: Cabinet Meeting Nov 1, 2005
Prioritizing infrastructure investments will reduce cost & raise quality of
infrastructure services
0
50
100
150
200
250
300
350
400
450
Mas
s T
rans
it
Tra
nspo
rtat
ion
Hou
sing
Wat
erR
esou
rces
Edu
catio
n
Pub
lic H
ealth
Oth
ers
Bill
ion
Bt
23
THANK YOU
Full report can be downloaded from
www.worldbank.or.th
24
Medium term growth will help Thailand sustain poverty reduction
Region 2000 2002 2004Bangkok and vicinity 1.6 2.2 1.6Central 10.5 8.0 5.1North 23.5 18.7 16.2Northeast 35.0 23.7 17.2South 17.1 13.8 7.8Whole Kingdom 21.3 15.5 11.3
Source: NESDB
Note: Based on revised poverty line
Poverty Headcount Ratios in 2000, 2002, and 2004