Information on Thailand

Area:	513,115
Population:	64.6 million (2004)
Capital:	Bangkok
Language:	Thai
Religion:	Buddhism 94%; Islam 4% Christianity 1%, other 1%
Government:	Constitutional Monarchy
Currency:	Baht

Economic Data

Economic Performance in the year 2006.

Overall, the economy expanded by 5.0 percent in 2006, above that of 4.5 percent in 2005. The leading driver was strong export volume which expanded by 9.0 percent owing to a robust global economy. Import volume growth, however, dropped by 0.8 percent comparing with 8.8 percent increase in 2005 following a slowdown in private consumption and investment which expanded only by 3.1 and 3.9 percent, respectively. The slowdown in domestic demand was due to higher oil price, rising inflation and interest rates. Moreover, rising concerns over domestic situation both in the Southern unrest and political uncertainty also dampened people and investors' confidence.

Exports of goods and services were the key drivers for the Thai economy in year 2006, especially in electronics goods and tourism services. In year 2006, the value of exports was 128,220 million US dollars; increased by 17.4 percent from 2005. This was equal to 4,849,247 million baht; which increased by only 10.2 percent due to the appreciation of the Baht. Exports benefited from the world electronics and the development of new technology and design of televisions and radios, for example, LCD and plasma televisions has induced demand in the market. Furthermore, the acceleration of television sale in the US market before the decision to scrap the GSP in television products with Thailand in year 2007 also explained the rapid increase. Air conditioners and parts also increased as as agriculture products, for example, rice and rubber. The price of industrial products still increased in the second half of the year. Consequently, the total value of exports continued to rise.

There has not been a clear evidence of the impacts of baht appreciation on exports. The Baht appreciated from 40.98 Baht per US dollar in the fourth quarter of 2005 to an average of 39.29, 38.07, 37.64 and 36.53 Baht per US dollar in first, second, third and fourth quarter in 2006. Exporters, especially those who mainly rely on domestic raw materials and being labor-intensive, such as agro-industry products, textiles, clothes and shoes will suffer more than the technology intensive industries which depend on imported inputs. The reason is that intensive industries can not fully adjust price in terms of US dollar upward, whereas there were increasing burdens from higher wage, interest rates and oil price in Baht terms with no benefit of obtaining cheaper imports.

The value of import in year 2006 was 125,975 million US dollars, increased by 7.0 percent comparing to 25.9 percent increase in 2005. This is due to a slow down in most categories of imports, especially import of oils which rose by 20.9 percent, down from 59.1 percent in 2005. Imported raw material products for export and domestic use increased by 4.3 percent and capital goods increased by only 3.9 percent thanks to sluggish investment. In year 2006, the trade balance was in surplus at 2,245 million of US dollars, even though trade balance in the first half of the year was in deficit at 1,929 million US dollars. Trade balance of oil recorded a deficit at 15,288 million US dollars, but non-oil trade balance registered a surplus at 14,810 million US dollars. Trade surplus together with the surplus in net services income and transfers of 996 million US dollars resulted in a current account surplus of 3,240 million US dollars, equivalent to 1.5 percent of GDP

Private consumption and investment continued their slowdowns in 2006, expanding by only 3.1 and 3.9 percent from 4.3 and 10.9 percent in 2005 respectively. This was a result of reduced purchasing power in response to high oil prices and commodity prices, uplifted interest rates and deteriorated consumer confidence since the beginning of the year. Private investment slowed down both in equipment and machinery and construction, particularly housing construction. Negative factors include (i) Soaring oil prices and high interest rates that put pressure on production cost (ii) Political uncertainty that worsened business confidence and led to pending decisions on investment.

Economic factors/conditions in 2007

The Thai economy of 2006 showed favorable growth with stability. Concurrently, the fundamental of the economy was sound and stable as observed in several key economic indicators such as low unemployment rate, declining public debt to GDP and lessened inflationary pressure as a result of (1) upward interest rate adjustment in the earlier period which softened credit expansion and (2) falling oil price since August. Moreover, the interest rate remained stable since the middle of 2006 before policy rate cuts twice at the beginning of 2007 and some financial institutions started to lower their lending rates thereafter. Consumer confidence has also improved since September and business sentiment has started to pickup. All of these positive factors will continue to support the economic growth in 2007.

Nevertheless, there are still some downside risks associated with the economic outlook in 2007, both external and internal factors. External factors include a global slowdown led by a slowdown in the US economy. A cooling down of US real estate sector could be severe which could put depreciation pressures on the US dollar, while the US twin deficits problem still persists. Moreover, it is likely that crude oil price will be higher than in the first two months of 2007 and still volatile due to the production constraints of petroleum industry. Meanwhile, the US-Iran disputes over Iran's nuclear program have not yet eased. On internal fronts, attention should be on continuing slowdowns of domestic consumption and investment. It is important to create understanding and restore confidence from people, both domestic and foreign by such measures as making pubic relations based on precise facts and enhancing opportunities for trade and investment.