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AseanAffairs Magazine September - October 2010

Thai Prime Minister
Abhisit Vejjajiva

Four months on in the reconciliation process Asean Affairs examines the progress and shortcomings of Prime Minister Abhisit Vejjajiva’s plan to bridge

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Cars ready to be shipped at Laem Chabang port, on the eastern seaboard, Thailand.

The Thai economy grew at an impressive rate of 10.6 percent year on year in the first half of 2010, despite the impact of political turmoil in April and May, driven by buoyant exports. 

       Latest economic data for the second quarter of 2010 showed that the Thai economy managed to clock up marginal positive GDP growth of 0.2 percent quarteron- quarter despite the disruptive impact of political turmoil in April and May. Much more impressive was the annual increase in GDP in Q2, up 9.1 per cent on a year ago. The quarterly growth outturn confounded most expectations – including government estimates – that the economy would experience negative quarter-on-quarter growth due to the impact of the political turmoil. Buoyed by the strong growth outturn in the first half of 2010, the Thai economy is expected to achieve real GDP growth of around 7 percent in 2010, after contracting by 2.2 percent in 2009. The IMF is also very positive about the outlook, having recently raised its forecast for Thai GDP growth in 2010 to between 7 and 8 percent. The Bank of Thailand, the central bank, also raised its 2010 GDP growth forecast in late July, to a range of 6.5 to 7.5 percent.

The strength of Thailand’s economic performance despite the political turbulence and violence in Bangkok during April and May reflect the relative stability of conditions for manufacturing and agricultural output. Although tourism inflows, particularly to Bangkok, were badly hit in the second quarter, there has already been a significant rebound in tourist arrivals, with the domestic tourism industry recovering rapidly.

The outlook for 2011 is for significant moderation in the pace of growth, to a rate of around 4 percent, which is slightly below Thailand’s potential medium-term growth rate. This reflects expected moderation in the pace of global recovery in late 2010 and into early 2011, as the impact of fiscal stimulus and the positive inventory cycle in the U.S. and EU fade, impacting on export growth, as well as the expected continued dampening impact of political uncertainty on investment inflows. Furthermore, the Thai central bank has begun tightening monetary policy in order to forestall inflationary pressures, with two small rate hikes in July and August, and further gradual monetary policy tightening is expected.


At the heart of Thailand’s strong economic rebound in the first half of 2010 has been the rapid recovery of exports, given the importance of the export sector in the overall Thai economy. With exports growing by 36.6 percent in the first half of 2010, GDP growth for the first half of 2010 was up 10.6 percent year on year, the highest growth rate since 1997.

The rebound in the global electronics industry has been an important contributor to the upturn in Thai exports, with electronics still a key segment of Thailand’s export manufacturing industry. Electrical and electronic exports were up 37 percent in the first half of 2010, helped by strong demand from China and the recovery in demand from the U.S. and EU. The outlook for the global electronics sector remains positive for the near term, helped by strong demand for computer equipment and mobile telephones in developing countries, notably China and India, as well as the rapid worldwide adoption of 3G broadband wireless communications. The Semiconductors Association is forecasting a 28 percent rise in global semiconductors sales in 2010, with continued expansion in 2011, albeit moderating to a pace of 6 percent.

However, in addition to the contribution of the electronics export sector, a rapidly growing contributor to Thai manufacturing exports has been the auto sector, with Thailand exporting 506,000 vehicles in the first seven months of 2010, up 116 percent over a year ago. Intra-Asean export demand has been an important contributor to this strong growth in auto sector exports, with Asean markets now accounting for around one-quarter of total Thai auto exports. This also reflects the importance of Asean’s trade liberalization initiatives within its internal market, as the elimination of tariffs within the Asean Free Trade Area since January 2010 has been a significant factor supporting the development of regional demand for Thai auto exports. The performance of the auto export sector underscores the fundamental competitiveness of the Thai manufacturing sector and the considerable potential for Thailand to attract significantly higher foreign direct investment.

Complementing the strength of the manufacturing sector rebound has been healthy expansion of agricultural exports, which were up 48 percent in H1’10 compared to the same period a year ago. Thailand is one of the world’s largest exporters of rice, sugar and chicken, with a diverse range of other agricultural product exports. While the very important rice export industry has seen somewhat lower exports during 2010 to date, with export volumes down by around 8.6 percent compared to last year, the outlook is for some improvement in rice prices in coming months, with the Thai government also targeting mediumterm improvements in average rice export values through quality improvements in Thai rice compared to competitor nations.


One of the key challenges facing Thailand since 2008 has clearly been the significantly higher political risk confronting both foreign and domestic investors. The impact of political instability and unrest has had a substantial negative impact on foreign capital inflows into the country, both for net foreign direct investment and portfolio inflows. Prior to the escalation of political protests and unrest, Thailand had been attracting steadily rising foreign direct investment inflows between 2002 and 2006. However, since then, net FDI inflows have been declining, with the slump in net flows deepening further due to the impact of the global financial crisis and world recession in 2008-09.........................





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