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.
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.
EXPORTS DRIVE UPTURN
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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